Planning for the “Family” Vacation Home
The beach house. The ski condo. The lake cottage. Many people want to keep these properties in the family, often for generations. Parents often believe their kids and grandkids will never want to sell the property. They believe (maybe hope) their children will work together to manage the property and face the ongoing maintenance expenses with ease.
Family properties are amazing gifts and can help solidify family values and a parent’s legacy into the future. However, if no planning (or minimal planning) is done – family properties can create tension among siblings and grandchildren. As with many aspects of estate planning, the parental generation can set the family toward success with strong baseline planning.
We often suggest a partnership or limited liability company to own the property. The underlying business documents (partnership or operating agreement) should, at least, outline who will manage the property; the creation of a budget for expenses; the use of the property; the ability to transfer the property to others; and buy-out provisions.
Speaking with the children and grandchildren ahead of time and discussing plans and goals relating to the property are important. Transferring the property to the next generation (or to a trust for their benefit) during a parent's lifetime can help create the norm for how the property will be managed after death. We often recommend that the entity be funded with seed capital, either during life or at death, to facilitate the payment of property related expenses for a period of time after death.
Many families successfully keep properties in the family for generations. However, sometimes on-going family ownership is not the best path for a particular situation. A well created plan for a family property, including valuation and buy-out provisions for an exiting family member in the governing documents, helps keep the family relationships in tact through these difficult transitions.