Your family lake home or a property has likely created many great memories you all will cherish. It may be that everyone in your family loves going there. What happens to that special spot after you and your spouse are gone?
Unfortunately, a vacation property isn’t easy to transfer as a legacy asset. In this week’s MoneyDo, we encourage owners of a vacation property to have a family meeting and build a plan for when you and your spouse either pass away or decide you don’t want to continue to own the property.
As with any well-thought out and executed estate plan, your goal should be to avoid animosity amongst your heirs. A poorly-thought out estate leaves many decisions to your heirs, which can create an adversarial relationship if they disagree.
Unfortunately, we’ve seen some devastating disagreements through the years, situations where the dissension threatens to permanently fracture your family.
Take steps now to leave behind peace and more memories instead of confusion. Begin with a family meeting to understand your family’s wishes. Determine if they want to keep it as a group or who is interested in inheriting it.
Once you’ve established who’s involved, these details should be considered and resolved during your life:
- Do all of your heirs wish to continue to use the property? *This can be tricky, because of proximity: Does one child live closer to the property than the others? Will that child use the property an inordinate amount of time compared to the other children? Should the others be compensated for this? What if one of your heirs lives far enough away they will not use it at all. Should your other children be required to buy their share?
- Who’s responsible for maintenance? This can be another source of contention. Major maintenance items, such as a new roof, or replacing aging appliances, can potentially be very expensive. What happens if one of your heirs can’t afford to pay their share or refuse to do so? Who’s responsible for managing the process? Will one of your heirs be willing to keep up weekly maintenance such as lawn mowing and keeping the property clean?
- Who’s responsible for annual property taxes and fees? Don’t put one child in the position where they’re the “bad guy” who must collect from another. Build a plan to address the payment process and guidelines now. Perhaps funds are put in trust to cover expenses for the next generation.
- Will the property be rented when not in use? If so, who will manage the rental process? Will he or she expect to be compensated for their time? Who will manage the income?
- What happens to the property after your heirs pass? We’ve found this could be another tricky situation. Make sure your estate plan addresses how the property transfers to the 2nd generation: perhaps it’s mandated the property be sold. As contentious as the discussion could be now, consider how much discomfort you are likely alleviating your heirs in the future.
- What about boats and other toys? Who will be responsible for maintenance? Will there be set rules on usage and who can use them? Who will assume liability?
After you’ve determined who’s interested in inheriting the property and considered the details noted above, it is time to consult with an estate attorney. Convey to your attorney your wishes and the wishes of your heirs. Based on this information the attorney can build a plan to efficiently meet your goals and keep your family together as a happy clan.
If you don’t have an estate planning attorney, find an advisor you can trust – often those that use a team approach like Annex Wealth Management will have an estate planning attorney on staff for discussions like these.