Five Possible Vacation Home Solutions for Your Estate
Perhaps 20% of our clients have a second home. In some cases, it’s a true vacation spot; in other cases, it doubles as an investment property or part-time Airbnb™. Either way, it may be desirable to leave the home to family members to keep for their use or for income. If so, it’s an “heirloom property.”
For over 35 years I’ve been helping clients pass vacation properties down with the least friction and the highest happiness quotient we can create. These are my picks for the five most successful heirloom property strategies:
1. Require that the property be sold.
If the property is unlikely to be popular with everyone, then let it be sold! Anyone who wants to (or can afford to) can be a buyer. The main advantage of the sale requirement is that it removes the friction and confusion associated with second home ownership in the next generation.
The confusion is the uncertainty of “What shall we do?” when mom and dad leave no instructions. The friction is “I want to keep it! I’m not selling! Too bad for you! Sue me!” or other fighting words. Maybe there’s no harsh words in the first few months after you’ve died, but definitely within a few years as the relationships over the home disintegrate. You can avoid this recipe for family breakdown over the second home by requiring the sale.
2. Provide a grace period for property enjoyment.
In this approach, you are acknowledging the value of togetherness and place, and encouraging the family to continue to enjoy each other’s company, while providing an exit plan. Require that a sum of money be set aside to support the property during the grace period which can be for another season or two, five, or even 10 years. At the end of the grace period, the property shall be sold.
3. Provide a full-fledged agreement for the heirs to be partners in the next generation of ownership.
Under an Heirloom Ownership Trust, the family members will have terms for percentages of ownership, understanding of purpose, governance, use restrictions, stewardship (maintenance and financial support), and transferability of shares to the next heirs in line. I call this “laying down the law,” because you are setting out the terms and squelching the urge to disagree. The family is not going to be debating how to run their operation because you will have set out the terms for them ahead of time. Put a cap on the number of years that seems reasonable, such as 20, 30 or perhaps as long as 50 years. Leaving all this up to the next generation to figure out is almost never a good idea.
Once again, at least a starting kitty should be considered to help pay the bills.
4. Give the property to the family members who actually will enjoy using it.
Find out ahead of time – or determine from your own experience – who really wants the property! If your estate can be allocated accordingly, those who get the property will get less money; and vice versa: those who get more money will not get the property. You may want to carry life insurance so that those getting cash are guaranteed of this fact and are not disadvantaged compared to those getting the property. An irrevocable trust would be suggested for the property so that you cannot lose it between now the time of your passing to creditors, divorce, long-term care expenses, and the like. You may have to require that the property be valued so that there is not a distinct advantage in receiving something more valuable than the cash that the others receive.
On the other hand, fairness is not all about monetary value. If you have a well-functioning group, those who get home are likely to be open to sharing the place in the spirit of togetherness that you hoped they would retain.
5. Let the family members decide, but set a deadline.
Require that the children decide for themselves whether they want to keep the home and for how long, but that they have to come to an agreement within three years following your passing. The children have to cooperate in good faith to come to an agreement – a permanent, written, professionally drafted agreement – or else by the end of the 3 years, the property shall be sold.
Notice anything in common?
One thread through these options is that there are written terms, either set out today by you (which is usually preferable), or that will come down the line.
What will work for you? Let’s talk about it.
Schedule a complimentary appointment with our Managing Paralegal, Paula Nolan.
