For many people, deciding how to address a vacation home in their estate plan is even more challenging than determining what to do with their primary residence. A vacation home can hold a lot of sentimental value for those who associate it with some of their fondest childhood memories.
However, deciding the best way to leave it to adult children as an inheritance requires considering multiple options. That’s particularly true if you have more than one child.
Before doing anything, find out how your kids feel about keeping the home in the family. Will they even use it? If you have a condo on Miami Beach or a home in Palm Beach and they’ve moved out of the state, they may have no interest in visiting it. They might prefer to sell it and split the proceeds.
Putting the home in a trust
If your children are interested in keeping the home and can afford the taxes, insurance and other costs of maintaining it, sometimes the best way to do that is to put it in a trust rather than leave it to them directly.
Several kinds of trusts can be used for a vacation home (or any real estate). These include:
- Qualified personal residence trust
- Irrevocable trust
- Revocable trust
Another option is to create a limited liability company (LLC) and place the home in that.
Each of these options has advantages and disadvantages, so it’s wise to learn more about them and determine which best fits your needs and goals. For example, do you want to continue to own and use the home while you’re still around or give it to your children now? It’s also important to consider the tax implications of each option for your children and you.
If you set up a trust, it’s smart to include terms for how the use and expenses of the property will be divided among the beneficiaries. Other matters can be addressed, like whether they’ll rent out the home for part of the year. Getting these details codified can help prevent conflicts later.
Choosing the right trustee is also important – particularly after you’re gone. It may be best to choose a professional trustee rather than someone in the family to help minimize hurt feelings and drama.
These are just a few things to think about if you pass down your vacation home to your children. With trusted legal guidance, you can help ensure that your home remains a source of enjoyment and not becomes an object of dispute for your family.