You are meeting with your lawyer and discussing your estate planning. The discussion expands from how your estate consists of current home, bank accounts and other probate assets. You then begin to discuss your vacation home and what you intend to happen when you and your spouse pass away. Most parents, and sometimes aunts and uncles with no children but very involved nieces and nephews, assume that the vacation home will pass to the next generation. However, estate planning for a vacation home warrants a more in-depth discussion since there are issues that may not arise with the outright distribution of other assets. See the article in Elder Law Answers for more detailed information.
Parents assume that the children will want the vacation home and will come up with a plan to share it. But if the home is passed to the children as joint tenants with right of survivorship, or tenants in common, one sibling might decide that they are not interested in the vacation home, particularly in sharing the expenses. One child may demand that he or she be bought out, and if the other children/owners, cannot come up with funds, then the child who wants out can force a sale.
The Elder Law Answers authors have three suggestions regarding estate planning for a vacation home:
The family should meet and discuss whether all of the children actually want the property. If all agree, then a plan should be put in writing as to who will be responsible for maintenance and property taxes, who can use the property, and for developing a schedule among themselves for use of the property and other issues that may come up. The plan can include a buyout option in the event that any owner wants to recoup their share. The buyout “price” can be set, and it can be done via a payment schedule. If any heir does not want the property while the parents are still living, then perhaps some other type of bequest can substitute.
Limited Liability Company:
LLCs have become popular and can be a good way to eventually transfer a vacation home. Parents can maintain control if they wish, and use the annual gift tax exclusion to transfer additional interest in the LLC over time. Be sure to use an experienced business attorney to set up the agreement and make sure that the LLC is protected from creditors.
Qualified Personal Residence Trust:
A QPRT allows the parents to live in the home for a certain number of years, with the children owning the home at the end of the term. QRPTs are tricky to set up and require an experienced attorney to make sure that taxes are actually reduced.
Also be aware that if one spouse is likely to need nursing home long term care and Medicaid, transfer of the vacation home may be necessary sooner rather than later. Contact the attorneys at OWM Law for assistance in this area of estate planning.
Submitted by Kathleen M. Martin, Esq. CELA