Vacation homes are the playground on which many wonderful memories are created, but a vacation home is also real estate that must be planned for, managed, and maintained. Therefore, some important estate planning questions need to be considered when owning a vacation home.
WHAT HAPPENS TO YOUR VACATION PROPERTY UPON YOUR DEATH?
This largely depends on how it is currently owned. If you are the sole owner or if you own the home as a tenant in common with one or more people, you need to decide what will happen to your interest in the property.
Suppose you own the property with another person as joint tenants with rights of survivorship or with a spouse as tenants by the entirety. In that case, your interest will automatically transfer to the remaining owner without court involvement.
If a trust or limited liability company owns your vacation property, the entity will continue to own the property after your death.
WHAT DO YOU WANT TO HAPPEN TO THE PROPERTY UPON YOUR DEATH?
Being proactive by creating an estate plan allows you to control what happens to your property. If you do not create a plan for your property (and if it is not owned in joint tenancy with right of survivorship or tenancy by the entirety), you will be putting your loved ones through the probate process.
WHAT ARE MY OPTIONS FOR HANDLING YOUR VACATION PROPERTY?
- Give the property outright to a loved one.
- Leave the property outright to a group of people.
- Prior to your death, transfer the property to your revocable living trust.
- Prior to your death, transfer the property to a special trust that owns only the property.
- Prior to your death, transfer the property to a limited liability company.
- Instruct your trusted decision maker who will wind up your affairs to sell the property.
CAN YOUR BENEFICIARY AFFORD THEVACATION PROPERTY?
While there may be wonderful memories associated with your vacation home, you know there are also many responsibilities. When you decide to leave your property outright to a person or group of people, they will become responsible for financial obligations such as mortgage payments (if any), utility bills, and property insurance and taxes.
If wish your beneficiary to keep the property, you need to consider whether they can meet the financial obligations; if not, they may end up prematurely selling it.
IF MORE THAN ONE PERSON WILL HAVE AN INTEREST IN THE PROPERTY, DO THEY ALL GET ALONG?
All your children may get along now, but will they still be able to come together and see eye to eye when you are no longer living? Owning property together means that they need to be able to communicate, agree, and equally contribute to the property’s maintenance. A proper estate plan can address these potential issues by outlining everyone’s responsibilities with respect to the property, everyone’s rights to the property, who makes the decisions, what to do if a dispute arises, and how someone can walk away from the property.
WHAT SHOULD YOU DO TO MAKE YOUR INTENTIONS A REALITY?
You need to legally document your intentions to ensure that your loved ones know what your wishes are, that they will be followed, and that all possible scenarios have been planned for. If you have concerns about your beneficiaries being able to financially maintain the property, you need to meet with a financial advisor to design a plan that allows you to set aside money for its maintenance. Also, you need to meet with an insurance agent to make sure that the property is properly insured based on its intended use and to acquire additional life insurance in case you need another source of financial liquidity for its maintenance.
You should also meet with your tax adviser to make sure that you know of any potential tax consequences of transferring the vacation property, whether during your lifetime or at your death.
If you are interested in learning more about your options for protecting your vacation property and having your wishes for it carried out, please contact us. You may email me email@example.com or by phone at 239-344-1362.