A family vacation home is a place of fun, memories and refuge, but when the matriarch or patriarch who bought the home dies, family members may to go to war over visitation rights and ownership of the property, which can be worth a significant sum. This is why it's important to include any vacation property as a part of the owner's estate planning. According to the National Association of Realtors and the Financial Planning Association, there are nearly 8 million vacation homes in the United States.
Such significant property can also create significant discord when there's a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That's why it's important for planning experts to be brought into what might seem as a fairly minor investment issue. Here are some suggestions:
Do a market analysis: How valuable is the family vacation home, anyway? It might make sense to appraise the property and launch a competitive market analysis to see what other homes in the area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it's fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at the time when they'll have full control over the choices that get made.
Discuss scenarios with your team of experts: Again, it's important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you'll have more to discuss when you finally bring it up with your heirs.
Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is an emotional issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.
Start developing the plan: Once you reach consensus with relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they're alive so surviving heirs don't have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens.
Consider different ownership structures: Older family members who may wish to keep the vacation home might consider a limited liability company (LLC) or a Family Limited Partnership as an ownership vehicle. LLC's and FLP's can offer lawsuit protection from creditors and users, they'll keep the property in the family and they will help the owner set up an entity structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted in this process.
Have some fun: Don't let the process of handing down the property or discussing future ownership detract from the property's original purpose - to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.