If you're enjoying that last summer outing to your vacation home this Labor Day weekend, it's a good time to start thinking about creating a succession plan for the property. A detailed plan will make the transfer of ownership easier and establishes rules that will help prevent bitter family conflicts down the road, experts say.
For those of you with still-fresh memories of these past summer weekends out at the family cottage, now may be the time to take action to ensure that future summer outings will continue to be enjoyed by your family long after you are gone. In other words, ensure the future of the family cottage and the peace and domestic tranquility of your family through proper estate planning. So, how do you do that? The Wall Street Journal Online recently touched on the topic.
The best way to leave an inheritance that includes a family vacation home depends on who will be inheriting it. That is the first essential decision. For example, are you leaving it to one family member or to several? Who will be interested in the home (or more interested in your portfolio)? Who will be able to use the home? The adult child living in California might not be able to enjoy the Northern Wisconsin cottage. This is especially true if they have their own vacation property, or if they wouldn’t be able to afford the upkeep, insurance and taxes.
If you’ve settled on a single person to inherit the family vacation home, then it is relatively easy: you can either gift it during your lifetime (before 2013 would be prudent), or leave it through your Last Will and Testament or Revocable Living Trust. If you are leaving it to multiple beneficiaries, like an entire generation of your family, then perhaps consider establishing a specific arrangement for such ownership. For example, many families find the Limited Liability Company (LLC) or various forms of trusts to be practical tools.
If all of the heirs are adults, then an LLC might be a better fit as it allows members a more equal say in what to do, while still providing a framework for decisions or an organizational structure through the use of a solid operating agreement. Of course, you could take it a step further and form a trust that owns an LLC that owns the home, or even specific trusts like a Qualified Personal Residence Trust (QPRT.).
On the other hand, if there are young children in the family, then a trust with a long-term duration might be better. Why? Because it allows parents to pass on the vacation home to their children while still appointing an adult in charge as trustee. In addition, properly drafted with “spendthrift provisions,” such trusts can protect the family cottage from the potential divorces, lawsuits and bankruptcies of the heirs.
For many, a family vacation cottage is a place of many happy memories shared over a long family history. As a result, it just has to stay in the family. Once you start down the path to make that happen, however, don’t wander too far without appropriate legal counsel. You will need experienced help to navigate the details, figure out what’s best for your unique situation, and eventually put ink to paper.
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Reference: The Wall Street Journal Online (September 4, 2011) “Create A Plan To Pass On The Family Cottage”
Nice post....I believe that family vacation does not means to go out with the family its to make many happy memories shared over a long family history.
Posted by: Gatlinburg Luxury Cabins | 11/22/2011 at 12:09 PM
It is better if you can keep the family vacation home within your clan. However, in this economic times, more and more homeowners choose to let go of their vacation homes. It's a sad truth but it is needed to be done.
Posted by: Brooklyn movers | 12/12/2011 at 09:52 PM
I have heard of staycation as well. This is quite the trend on this hard times. Home vacations are cheaper but relaxing as well.
Posted by: home owners insurance company | 02/07/2012 at 06:01 PM
This plan can be helpful in a lot of ways. I'm glad you shared this to us. Thanks.
Posted by: Income Protection Insurance Australia | 05/08/2012 at 08:51 AM
If you’re self-employed, then likely you know just how much the flu or even a short-term injury can set you back. If you are out of the “game” for even a short period of time, then there is a direct impact on your bottom line. There is no sick leave to fall back on
Posted by: ppi | 02/01/2013 at 08:07 AM