How to Bequeath Vacation Properties
Summer is here, and vacation season is in full swing. Perhaps your family is enjoying their time at the beach, in the mountains, or at a lakehouse. If you’re fortunate enough to own a vacation property in these kinds of locales, it undoubtedly has been a source of joy and great memories for you and your loved ones.
Real estate ownership is an important consideration in the estate planning process, especially if you own property outside of your state of primary residence. Here are just a few points about vacation real estate that warrant an in-depth conversation with an experienced estate planning attorney.
Passing Real Estate to Heirs
It’s not uncommon for adult children to want to keep a vacation property that their parents purchased, especially if it has been part of family traditions. There’s also the practical aspect of home values; grown children may want to keep a vacation home that their parents bought years ago when real estate prices were much lower because it would be difficult to replace it in today’s dollars.
On the other hand, it may be easy to assume that children want to keep a cherished vacation home that’s the site of so many wonderful memories; however, your children may think otherwise. A beachfront property, for example, might have appreciated so much that your heirs would like to sell it and capture the gains. A vacation home also may be too expensive or impractical for them to maintain.
In either case, meeting with an estate planning attorney to discuss what happens to your vacation property when you die is highly advisable.
Important Points About Leaving Real Estate to Heirs
- If you leave real estate to heirs via a Will, the probate process may become more complicated. If real estate is owned in multiple states, it often means a Will must be probated in each state. One way to reduce the risk of multiple probates is to have the property is owned in a Trust, instead of relying on a Will to transfer ownership of the property at your death. For example, if you live in Georgia and own a beach house in Florida and a mountain cabin in North Carolina, your Will must be submitted for probate in each of those three states in order for it to control all three properties.
- Adding a child’s name to a deed isn’t usually the best solution. If you’re thinking of simply making changes to the house title, note that it is almost never advisable to add a child’s name to a house deed or to transfer a title to a child. It can cause many unintended consequences, such as triggering tax return filings, increasing eventual capital gains taxes, or exposing the property to the child’s creditors or divorcing spouses.
- Family disputes must be anticipated and managed. Conflicts may arise when the heirs aren’t in agreement about what to do with the property, if one child wants to maintain ownership of it and the others don’t, if only some of the children can or will contribute toward the upkeep, or if one child wants to live in it full time.
When thinking about how to leave vacation property to your children, it’s important to start by having a family conversation to uncover their feelings about inheriting the property. If no one wants the property, then it may be prudent to consider selling it when it’s no longer desirable for you to keep it. If one or more children would like to keep it, determine who wants it and can afford to maintain it. If they all want to keep it, it’s important to think through how they will jointly own the property. Good estate planning can deal with all of these issues. Good estate planning can also help greatly when the family plans to keep the vacation home, by ensuring that difficult issues are considered and planned for instead of popping up unexpectedly, after the original property owner’s death.
Options for Bequeathing Vacation Homes
Assuming you have made the decision to not sell the vacation home while you’re still living, there are several options you could consider:
- Gifting during your lifetime. Assets such as real estate may be gifted outright while you’re still living. These gifts can reduce your taxable estate. However, these kinds of gifts may trigger gift taxes and require filing a gift tax return.
- Leaving the property outright to one child. If one child has a strong desire to maintain ownership of the vacation property, you could leave the property to that child in your Will. Your other heirs could then receive equivalent inheritances from other assets in your estate, or you could decide that unequal overall shares are okay with you.
- Setting up mechanisms for joint ownership among your heirs. Entities such as trusts, partnerships, and limited liability companies are frequently used to help co-owners jointly manage property ownership.
- Transferring ownership to a revocable living trust. If your vacation property has become too challenging for you to manage, yet your children have a desire to keep it in the family, revocable living trusts can be beneficial. In this case, a Trustee would take over and manage the property on your behalf. When you die, the assets are distributed to beneficiaries according to the Trust’s terms.
Revocable living trusts also help you avoid ancillary probate for a second home or other real property outside your state of residence. If out-of-state real property is owned by a Trust, there is generally no need to probate your Will in the other state since the real property owner (the Trust) will not die when you die. This can allow the Trustee to transfer title to the intended beneficiaries more quickly and with fewer costs and hassle.
Estate planning for vacation homes can become even more complicated in blended family situations where there may be post-death disputes and misunderstandings. Getting the advice of an estate attorney is essential so that you leave nothing to chance.
The estate planning attorneys at Morgan & DiSalvo serve clients all over the Metro Atlanta area and would be pleased to consult with you about options for bequeathing real estate to your loved ones. Please call (678) 720-0750 or email info@morgandisalvo.com.
