Sun, Sand, and Succession: Estate Planning Tips for Your Vacation Property
A vacation property can be one of the most valuable things you can pass down to your loved
ones, from both a sentimental and financial standpoint.
However, mixing money and family can be tricky. Without a well-thought-out strategy for the
ownership transition, hard feelings and disputes could arise, and the vacation home could be
used in ways you did not intend.
Beyond family dynamics and legacy objectives, transferring a vacation property to the next
generation also has legal and tax implications that need to be addressed in an estate plan.
Vacation Homes Are a Store of Memories - and Wealth
It is that time of year when you and your loved ones may be preparing to spend time on the
beach or in the mountains at the family vacation home. Around 5 percent of all housing units in
the United States are second homes. There was a more than 16 percent surge in new vacation
home purchases during the pandemic.1 From humble cabins and beach cottages to luxurious
mountain estates and lake houses, vacation homes are owned by an estimated 4 out of 10
Americans.2
Many second homes are dual-purpose, serving as a family gathering spot as well as a revenue
source. Sites like Airbnb and VRBO have made it easier to rent out property. In 2023, the US
short-term rental market, comprising more than 785,000 individual hosts, 2.5 million available
listings, and 207 million nights stayed, generated approximately $64 billion in revenue.3
Vacation Home Estate Planning Considerations
As you clean up your vacation home and prepare to welcome your children, grandchildren, and
other family members for another season of memory-making moments, estate planning may be
a distant thought - if it is even on your mind at all.
But ensuring that the home remains a place for the family to gather for generations to come
requires addressing it in your estate plan now, while you still own and control it. Here are some
points to consider as you balance finances, feelings, and fairness in your vacation home estate
plan:
- Are you still spending time at the vacation home? This can affect whether you pass the
home to your loved ones now or after you die. It is not an all-or-nothing proposition, though.
You could establish what is called a life estate that allows you to transfer the vacation home
at death but continue using it during your lifetime.
- Who is interested in the property? There might be interest among all your children in
keeping the property, only one child who is genuinely interested in owning and using it, or
nobody interested in it at all.
- Do you want to set limits on what can be done with the property? Think about whether
the vacation home can be used as a rental, if family members should have the right to sell
the vacation home or their interest in it to people outside the family, the conditions for one
family member buying out another's interest, and other limits on what can and cannot be
done there.
- How compatible are your loved ones? If everybody gets along and has similar income
levels, you might not be concerned about their ability to equitably divide ownership rights
and responsibilities. But disagreements could still arise over things like who is responsible
for paying for upkeep, taxes, and insurance, and who can use the property - and when. And
the more family members there are who have a right to use the home, the greater the
potential for conflict.
These big picture estate planning issues for a vacation home can inform specific strategies such
as the following about how to pass the property down:
- Selling the home to a family member
- Gifting the home to family during your lifetime
- Passing down the home to loved ones through the probate process via your will
- Transferring the property outside of probate, either while you are alive or after your death,
with a trust or a transfer-on-death or pay-on-death deed (if your state recognizes them)
- Creating a limited liability company (LLC) or family limited partnership (FLP) to own the
vacation home
Each of these strategies has a different set of pros and cons that you should further discuss with
an estate planning lawyer.
Talk to a Lawyer About How Best to Keep a Vacation Home in the Family
Family can be complicated. Adding a treasured family vacation home to the mix only adds to the
complications.
We recommend talking to your loved ones about the vacation property. Once you get answers
to questions like who wants the vacation home, how much they might use it, and if they can take
on ownership responsibilities, reach out to us to create a strategy that aligns with your personal
circumstances and objectives.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional Counselors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
