Ah, the vacation home: a place of relaxation, where your family can enjoy time together and build memories. Inevitably, some of your children will love the vacation home and others will have no interest in using it. How do you balance these interests in planning for your vacation home?
Does your family wish to keep the vacation home? Before you invest in expensive, complex plans, you should determine whether your family members are interested in keeping the vacation home in the family. If the next generation has no interest in the property, your trustee or personal representative can simply sell the property and divide the net sale proceeds among your beneficiaries. If at least one beneficiary is interested in keeping the property, you may need to consider additional issues (below) to help you structure ownership and use of the property.
Do the anticipated beneficiaries have the financial ability to maintain the property? Vacation home ownership can be quite expensive. Homeowners’ insurance, real estate taxes, routine and capital expenditures can be expensive — especially when compared against the actual usage of the property. Does the intended beneficiary or beneficiaries have the ability to cover the costs of the property? If several beneficiaries are interested, does each beneficiary have the ability to meet his or her financial obligations? Is one or more of the beneficiaries likely to be slow to pay his or her share? If you are concerned about one or more of the beneficiaries paying expenses, do you have other assets you could use to pre-fund the vacation property’s expenses for some period of time? Can the property be rented out to third parties to help defray the costs of ownership?
Do you have other assets? If less than all of the beneficiaries are interested in maintaining the property, do you have other assets that can be used to fund inheritances. If child X is interested in the property and child Y is not, are you able to leave the vacation home to child X and other assets of equivalent value to child Y? If you do not have other assets, should child X be required to pay child Y for any excess value? If child X is required to pay his or her sibling for any excess value, how should that payment be made? By anticipating the issues in advance, you can even structure payment terms between your beneficiaries so that you are comfortable that the terms are “fair” based on your family’s circumstances.
If multiple beneficiaries have an interest in the property, you may need to incorporate a limited liability company or a trust to own the property. The operating agreement or trust instrument, as the case may be, can then specify as much or as little of the management terms as you wish to include. You may wish to dictate how expenses are paid, usage is determined between family members and decisions to sell the property are made. If one or more beneficiaries wishes to sell, you can even set out how the other family members are able to or obligated to purchase such individual’s interest in the property. you need a formal plan for managing the property?