Estate plans can be as unique as the individuals and families they are created to…
Planning for Your Vacation Home
Many families buy a vacation home with the idea that it will be a special place for the extended family to celebrate family traditions for generations. The value of a vacation home can be significant – both sentimentally and monetarily. However, without proper estate planning, the property that you thought would keep the family united may instead become a source of conflict.
Traditional ownership is almost never the best answer for vacation homes, regardless of whether you have a lake home, a mountain cabin, or a beach house. Without more specialized planning, it is likely ownership will become fractionalized over time. This means that future generations of family members who cannot afford their share of property maintenance, or who live too far away to use it, or who would just rather have the money, can exercise a right to partition the property and force a sale.
If your goal is for future generations of your family to make new memories in the vacation home, you must think long-term about house management logistics too. Who will manage and maintain the home? How will taxes, utilities, and repairs and maintenance expenses be paid? Who gets to decide how time in the home is scheduled? Or if it is rented to a third-party through a service like AirBNB or VRBO? If the family can’t agree, how will arguments be resolved?
One way to protect your vacation home for years to come is to create a LLC (limited liability company) that owns the property. The LLC can be owned by your revocable living trust or an irrevocable trust, but you can be the manager of the LLC during your lifetime to maintain control of the property. The vacation property still passes to the next generation because the trust will say who gets the LLC membership interest upon your death.
When you form an LLC, you also create an operating that can establish rules for operating the property, transferring interest, and resolving disputes. Your Operating Agreement can address issues like:
- Should family members have the right of first refusal before the vacation home can be sold to a non-family member?
- How should responsibility for the expenses of owning, maintaining, and improving the property be allocated? And what happens if an owner doesn’t pay their share?
- How can the use of the vacation home be fairly allocated, especially for the most desirable dates?
- How will people be held accountable for damage to the property caused by members, guests or pets?
- Can the family vacation home can be rented to non-family members?
Ideally, the time to set up the LLC is now, while it is on your mind and you have the ability to make decisions about your future.
Every family is different, and every family will approach the planning for their family vacation home differently. We are here to help you work through your options and come up with a plan that will minimize drama and foster peace among your family for years to come.
Reach out to us today to schedule a no-cost initial consultation online or by calling Littleton Legal at (918) 608-1836.