You love your family vacation home and cherish the memories you’ve made there over the years.
As you think about passing it down to your heirs, it’s important to consider how to balance your wishes with their desires. Here are a few key steps to follow.
Let everyone have a say
Bring your family together to hear everyone’s thoughts on the vacation home and its future. This is your chance to communicate what’s important to you and what you’d like to happen, and it’s also an opportunity for family members to voice their feelings.
“It’s a hard discussion sometimes, but it’s critical,” says Tim Towle, senior vice president with Ascent Private Capital Management of U.S. Bank.
Towle suggests having everyone write down what they want for the home and their goals for its future. Tell stories of the home’s history and your family’s experiences there and explain why you may want to keep the home in the family.
“This gives you a starting point for drafting a document that allows future generations to understand why you did what you did,” he says.
You may want to limit the initial discussion to key family members — your children and their spouses, for example — or you may want to give every member of the family an equal say. A financial professional can help you set up this meeting and plan for the discussion.
Consider your options
The primary options for passing on a home include:
- Sell it outright or giving it to one or more of your children as a gift
- Establish a trust, in which one or more trustees (a trustee can be an individual or financial institution) would be responsible for owning and maintaining the property
- Form an LLC or similar legal entity in which your heirs are shareholders and follow specific governance rules and operating agreements in how the property is used
The key factor in determining which option is right for you is flexibility. Do you want to ensure the home stays in the family, or do you want your children to be able to rent or sell the home if they choose? Do you want your children to be able to change the rules of ownership, or do you want a trustee to be in charge?
Other factors to consider include gift tax implications and how much responsibility your heirs are willing to take on.
“You could endow the property and put someone else in charge, so family members don’t have much involvement in planning or upkeep,” Towle says. “Or you could go on the other end of the spectrum — whoever uses it most pays the most maintenance every year, or somewhere in between. Educating the family on the pros and cons of different structures would be part of this."
Don’t wait to make a plan for your home’s future
“The sooner you start planning, the better,” says Towle. Talking about your plans early — while you’re healthy and everyone is able to communicate objectively — helps take emotion out of the discussion.
Some family members might not want ownership responsibilities, or your children might disagree about what should happen with the home in the future. Work with a professional as soon as you can to structure the succession in a way that benefits everyone and avoids conflict in the future.
“It’s better for everyone to come to an agreement before they have to,” Towle says.