Do you own a vacation home? If yes, do you own it alone or with others? Are you thinking of buying a vacation home? Will you be inheriting a vacation home?
Many of us fall in love with an existing vacation spot or the vacation home that has been enjoyed by family over a long period of time and dream of ownership. Whether you already own a vacation home or will acquire one by purchase or inheritance in the future, you should consider your ownership options, and then meet with your advisor to implement the form of ownership that works best for you. In all of these examples, if set up correctly, the property should pass at your death immediately without the need for probate.
A Limited Liability Company (“LLC”)
Consider placing your property interest into an LLC to limit your exposure to any lawsuits involving the property to the value of the assets held in the LLC. If you intend to rent the property, think about the costs involved if a renter or their guest falls off your deck and is seriously injured. While the tax details of this form of ownership are beyond the scope of this article, a single-member LLC does not require a separate income tax filing. In addition, a simple operating agreement to the LLC can outline rules for the use of the property and the responsibility for various fees and expenses associated with the property. Who opens and closes the property? Is there a cost for family member use? Who gets to use the property and when? An operating agreement adds clarity and avoids conflict when several family members intend to use a vacation property.
A Trust
There are potential estate tax advantages to owning your vacation property in a revocable or irrevocable trust which should be discussed with your attorney or tax adviser. In addition to the potential tax advantages, ownership in a trust will allow you to determine how the property will be administered and distributed in the event of your incapacity or death. Do you want the property to pass to your children at your death? Can they afford the upkeep and taxes? If not, do you want those costs to be paid from other trust assets? If you decide now, you can prevent conflict and confusion when you are no longer able to control those decisions.
A Nominee Trust
If you have concerns about privacy and want the ease of changing the nature of ownership over time via a Schedule of Beneficiaries rather than by deed, you should consider owning title to your vacation home in a Nominee Trust. With this specialized type of Trust, you can privately designate an owner of the property on an unrecorded Schedule of Beneficiaries and change the ownership without recording a deed. The beneficial owner can be your personal revocable trust, an LLC, or named individuals.
Conclusion
A vacation property can provide years of fun and deep experiences for family and friends, but the underlying emotional attachment may make it a touchstone for potential conflict. Take control and make an ownership decision that works best for you now to avoid arguing and dissension later.
If you have questions about estate planning, probate, trusts, and tax matters, please contact one of Conn Kavanaugh’s experienced estate planning lawyers.
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