If your family is lucky enough to have a second home, it might be a source of memories for generations to come. But it might also be a divisive mess that rips your family apart.
Passing your vacation home down to the next generation successfully requires a lot of communication and planning, according to Money’s “4 Questions to Ask Before Passing Down the Vacation Home to Your Kids.” The first question: do your kids want the house? The second question (if the first answer is yes): how will they pay for its costs and upkeep? The difference between an estate disaster that clouds their memories and a successful resolution is in the planning. The family home and vacation home both need to be addressed in your estate plan.
Who Really Wants It? It’s not uncommon for couples to want to leave vacation homes to their children (or other family members) as a way to preserve the associated memories. Maybe that’s why they miss that critical step—seeing whether family members actually want to own it.
What’s the Best Form of Ownership? There are several options. One of the easiest is to leave it outright in your will to specific family members. But this may create more complexities for your heirs—and possibly disagreements. Another option is to pass down the home through a trust, which can help alleviate some of the resentment from outright ownership.
Who’ll Pay for Upkeep? Vacation homes can be expensive. Your children might not be able or willing to cover those bills with their own money. A key consideration is whether to set aside additional money to cover the home’s ongoing costs. Many families who set up a trust leave extra money to cover operating costs for at least five years’ worth of expenses. That’s enough to pay for the home in the short term. The children can see if they actually want to keep it, and who really wants it.
Keeping the vacation home in your family may not be an option. A trust can be created that can force the sale of the house if the majority of trust beneficiaries want the vacation home to be sold. The trust then gives each beneficiary the right of first refusal to buy the house for its appraised fair market value. If no beneficiaries want to buy it, then the trust can require the house to be sold to a third party and proceeds distributed among heirs as per your instructions.
This is a decision that needs to be made without allowing your own memories to cloud your decision. Passing along a family vacation home to the next generation is a wonderful thing—but only if it is the right thing for your family.
Reference: Money (July 18, 2016) “4 Questions to Ask Before Passing Down the Vacation Home to Your Kids”