Article
Many times when financial planners are working with families to create an estate plan, we hit a sticking point: What is to be done with the family vacation home? Often children want to keep the house, which can be a complicated decision especially if multiple siblings may end up owning the house together. Owning property with siblings presents a challenge that should be planned for well in advance of parents’ deaths. Many people have never needed to maintain this type of business relationship with their siblings, so having such a plan in place can help ensure success and reduce stress for all.
When thinking through whether or not you would like to inherit the family vacation home, consider the following questions and discuss among yourselves:
- How much does it cost to keep the house?
Talk with your parents. What are the taxes, insurance, utilities, and maintenance? Once you know the ongoing costs, can everyone afford to keep the house? Also, is that how you and your siblings want to spend your money? - What is the house worth?
When you know the value, you may decide you would rather sell the house and have the money to do other things. - Is there deferred maintenance?
Are there looming expenses for the property? Many vacation homes are in challenging climates: sea air is corrosive, and mountain snow can be damaging. Be aware of unexpected expenses that can occur. - How will you make maintenance and upgrade decisions?
The timing of when a maintenance item becomes a necessity is often subjective, and budgets for upgrades can be all over the map. Discuss these possible occurrences among yourselves in advance to see if all of you are on the same page. - Who will use the property?
If you own the property jointly with your siblings, some of you may live closer to the property than others. Some siblings may have children who want to use the property more frequently. Will you be able to coordinate schedules? If one family’s members will use the property more than the others, what is a fair way to split costs? Can people invite friends? Must an owner be on the property if a guest is on the property? - Will you rent the property?
If you do, what will the net income be after expenses, management fees, and taxes? Be specific. People often over-estimate the rental potential of a property. If you rent the property, will the rental process and schedule affect your ability to enjoy the property at desired times?
Think through these questions and talk through the potential problems with your family. Have these conversations in a low-stress environment in advance, which is much easier than having to make a rushed decision during a time of crisis. Also consider putting the plan in writing to make sure all of you have an accurate understanding.
Consult an attorney to discuss the optimal way to own the property as well as the optimal way to receive the property. The attorney will be able to assist with liability protection as well as tax planning to ensure success and reduced stress for all the family.
