A family vacation home—whether it’s a summer house on the beach or a winter skiing bungalow in the mountains—can be just the thing that brings a family together. Unfortunately, it can also be just the thing that tears a family apart when parents pass away and the time comes to decide what to do with this wonderful family treasure. This article in the Wall Street Journal mentions that “Tensions often mount when a family figures out what to do with a property that could be a lightning rod for sibling rivalries—not to mention a sizable chunk of an estate.”
There are a number of issues that can be brought to the surface when adult children or grandchildren try to share a family property. “One big friction point in such an arrangement is how to pay the costs involved in maintaining a home—including taxes, insurance, utility bills.” But that’s only the beginning. “Other factors to consider: How the family gets along, where they live, what happens when the children who inherit a home get married and who is going to use the property.”
Fortunately, this is one family fight that can be prevented (or at least softened) by a little bit of forethought and planning. One of the first suggestions in the WSJ article is to leave family property to the next generation in a trust funded by life insurance. “That way, a professional trustee can manage the property, and the insurance proceeds can cover expenses.” A Qualified Personal Residence Trust (QPRT) or a Dynasty Trust can both be perfect for this purpose.
Another beneficial safeguard is to form a Limited Liability Company (LLC) for the property. An LLC can help establish an operating agreement to “cover rights of use and property management,” as well as shield heirs from estate taxes.
Having a good plan in place for your family vacation home can be the determining factor which allows the property to continue to serve as a place where your entire family can come together, to create happy memories that will last a lifetime.