Legal column: Family vacation homes, fostering closeness or animosity?
By Teresa J. Rhyne, Esq.
– The family vacation home is often a point of pride, a place for reconnecting and making memories. A vacation home, whether it’s in the mountains, near the sea, on a lake, or a farm, can have sentimental as much as economic value. Unfortunately, these very characteristics can also make the family vacation home one of the most difficult assets to pass down to future generations.
While a parent is alive and organizing family get-togethers at the vacation home—summer vacations, reunions, weddings, memorials—things often go smoothly. The kids show up, and eventually, the kids bring along their own kids, and everyone is happy (if a bit crowded) and reasonably well-behaved. Everyone knows who gets what bedroom, who sleeps in the bunk beds (sorry, younger kids!), who can drive the boat/ATV/tractor, who cooks, who cleans (not mom! She’s on vacation!), who gardens, who barbecues, and where the best take-out places are.
Everybody loves the family vacation, so, of course, parents want this joyful place to remain in the family for generations to come. Parents envision future generations vacationing just like they’re doing now. But things change when one generation passes on. Leaving the family vacation home to all children in equal shares in your will or trust may be a prescription for disaster. What once was an idyllic place can quickly become a battleground.
What can go wrong?
When the parent(s) pass away, there is no longer a matriarch or patriarch organizing the vacation and use of the property. There may even be vying for that role—is it the oldest child? The most responsible child? The wealthiest child? Logistically, it’s no longer one family in a triangular shape with the parents at the peak. Instead, if there is more than one child, it’s several families creating new “triangles” of their own.
Besides the struggle to “be in charge,” once the kids have kids of their own, and then those kids marry and/or have kids of their own, not everybody fits in the house. Or worse, not everybody gets along. So, who gets the “good weeks” to use the home each summer? Who gets the week it’s most crowded or before school lets out? If one of the kids has four kids of their own and another kid is unmarried and without kids, do they each get the same number of weeks to use the vacation home? What if one child doesn’t want to be a co-owner of the home? What if a grandchild moves in and refuses to leave?
If the children all own separate shares of the property outright, they each have the right to live there, to sell their share, to force the sale of the entire property, to vacation there when and how they’d like, and to bring whatever guests they’d like.
For these and myriad other reasons, leaving a vacation home outright in equal shares to all your children is rarely a good idea without some structure in place.
What to do
First, talk to your children (and grandchildren, if appropriate). Do they want the vacation home to stay in the family? Do they all want it? How will they use it in the future? Are the kids thinking they’d make a killing turning it into a short-term rental? Does one kid want to tear down the cabin and build a McMansion? These are all things you need to know before deciding how to leave the vacation home in your trust (and if you have a vacation home, you need a trust not just a will). Just because you like the idea of your kids all vacationing together long after you’re gone, doesn’t mean they will. If you don’t consider their plans for the home, you may be creating animosity among them.
If only one child is interested in the vacation home, you can leave it to them and leave other assets of equal value to the other children. If there aren’t enough other assets to equalize the gifts, you can give the child who wants the vacation home the right to buy it from the others or from your trust at your death. Be sure to consider the property inside the home (furniture, fixtures, and family heirlooms) as well, and determine whether those stay with the home or are divided among the children.
If more than one child is interested in the property, your planning will need to be more detailed.
When one or more people (related or not) are going to own property together, it’s important to have an agreement detailing the rights and obligations of co-owning the property. If it’s going to stay a vacation home, consider leaving the property in trust with specific terms for the use of the property (who, how, when, for how long), naming a trustee to manage the trust (one, maybe two people, but not all the children and grandchildren!), stating how and when the property can be sold, who pays for what (there will be property taxes, utilities, repairs, and maintenance) and the terms for passing the property through generations. In other words, set the ground rules and give a method for enforcing them.
If instead, the property is going to become a rental property, whether that’s a short-term vacation rental or a long-term rental, another option is to put the property in a Limited Liability Company (LLC). Each of the heirs can own a membership interest in the LLC, a manager is designated, and an operating agreement is entered into that sets out the terms for selling or otherwise transferring a membership interest.
An asset as special as your family vacation home needs and deserves special attention. Discuss your plans with your children or other heirs and then with an experienced estate planning attorney. Then enjoy sipping a cool beverage on that dock, beach, porch, or balcony, knowing you’ve left a legacy and not a conflict.
Note: This is not legal advice to you individually, and you should rely on your own family law and estate planning attorneys to advise you.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at Teresa@trlawgroup.net.