How to Keep Your Vacation Home in the Family

By Jenny Ling, Esq. and Michael Safren, Esq.

If your family owns a vacation property, you know it’s more than just a vacation home – it’s a treasured family asset.  It has memories for your entire family.  You’ve probably dreamed about your children and grandchildren, and even great-grandchildren, enjoying that property for years to come.  But you may be putting your family’s wealth and happiness at risk if you don’t make a plan for that property.  Some simple planning can help avoid family conflict and work to keep the property in the family for generations.

If you do no planning for your vacation home and just leave it to your children in a Will, you are leaving the door open for family drama and major expenses.  A property left in a Will must go through the probate process.  That can be time-consuming and expensive.  And if your property is in another state, your family would need to go through a secondary probate process in that state.  Extra time, extra costs.  But you do have options!

What options do you have for your vacation property?

You can sell your property to your children.  But can they all afford it?  Do they all even want it?  Are you sure they’ll get along as co-owners and be on the same page about how the property is used?  It would also mean that you are no longer the owner of this property and you may not be ready to make that step.

Establish a life estate.  You can transfer the property to your children now but still be able to use it.  The owner of a life estate retains ownership of the property during his/her lifetime, or the life of another, with the property going to the remainder interest holder after the death of the lift estate owner.  It would still be part of your estate for estate tax purposes but would avoid the probate process.

Gift the property to your children.  If you gift the property to your children, they do not need to come up with the money to purchase it now and can reduce the overall size of your estate for estate tax purposes.  But it can cause gift tax issues.  There is a limit on the amount of tax-free gifting you can do each year without paying gift taxes so you’d likely want to gift a portion of the property each year.  That can have extra costs and cause headaches.  You’d have to pay for an appraisal each year to determine the cost of the gift and you could also rack up the attorney’s fees.

Form an LLC.  If you rent out the property part of the time, an LLC may be the best plan for your family.  You’d retain at least 51% ownership of the LLC and divide the remaining percentage among your children.  The LLC can be dissolved or changed at any time.  This would also reduce your taxable estate.  An LLC can also protect the property in the case of the divorce of one of your children and can shield the asset from credits.  However, if you have a mortgage on the property, you may run into problems with your bank when trying to transfer title to the LLC.  There are ways around this but it can require refinancing the property.

Put the property into a Trust.  Putting an asset, like your family’s vacation home, avoids the probate process, regardless of what state the property is in and where you live when you die.  It also lets you keep some control over the property, even after you die.  You’d name a trustee, even a corporate trustee to avoid any family conflicts, to manage the assets.  There are multiple kinds of trusts that can be used in this situation.  The kind you pick depends on your family and your goals for the property.  We can help you find the right solution for you.

Make a plan for your family’s beloved vacation home

The worst thing you can do is just leave your vacation property as part of your overall estate.  What if one of your children doesn’t want the house?  Or the children can’t decide how best to use it – some children want to rent it out while others want to keep it all in the family.  Conflicts can arise and your children could rack up huge legal fees fighting against each other.  No parent wants that.

Be sure to include your whole family in the planning process.  Ask your children if they actually want the property.  That can help you decide what is the best path.  Factors such as financial considerations, geographic distance and time can impact whether your children even want to be an owner. 

The best thing you can do right now is Make a Plan.  Talk to your family and then talk to us to make sure your assets are protected and your family can enjoy your vacation home for generations.

Jenny Ling is a partner at the Law Offices of Jenny Ling, PLLC.  She focuses her practices on estate planning, business succession planning, business and bankruptcy.  

Michael Safren is a Partner at The Law Offices of Jenny Ling, PLLC.  His practice focuses on business, real estate, and civil litigation.