Vacation homes come in various forms, from the simple Cape Cod house to a Florida condominium, to a Pocono cottage, etc. These properties and their contents often have considerable economic value, but more importantly, they may have enormous sentimental value of preserving the family bond, and enriching family life for the present and in the future.
Many owners of vacation homes and their eventual beneficiaries have one estate planning goal in mind: “keep the property in the family as long as possible.” Yet, because of the possibility of disagreements and other problems among the joint owners, many attorneys often attempt to discourage joint ownership arrangements of vacation homes.
If a vacation-type property is to be left to adult children, many issues can arise because each of the adult children may have different ideas about what is to be done with his or her share of the property. For example, some may want to sell the vacation home (at least their share) because of personal economic problems; others may desire to rent the property during peak rental periods and reap rental income; while others prefer to leave it just “as is” and use it. Some children may want to “buy out” the others.
Other issues can arise with respect to vacation home ownership which includes the risk that creditors of the children or their divorced spouses may eventually make claims against the property and one or more children may become bankrupt. In the event that the children cannot ultimately agree on the ownership and use of the property, one of the children may bring a partition action. In this event, the party bringing the partition action is asking a court to divide the property because its owners simply cannot agree. This type of action is costly, comes with delays and very often culminates with an unsatisfactory outcome.
Thus, leaving a property to a group of people (such as ones children/descendants) can indeed create many challenges. However, proper guidance and legal planning can obviate some or all of the issues and challenges, and can enable the owner to successfully achieve his or her family goals. Specifically, the vacation property can be transferred to a Trust that is set up by the owner (the Grantor). In this manner, the owner Grantor can ensure that the property would not be sold on his or her death but will be held for the use and enjoyment of all of the owners’ children and future generations.
In the case of a transfer to a Trust, the owner of the vacation home would name himself/herself as the Trustee. A trust set up in this manner would be fully revocable which means that the owner/Grantor retains control during his or her lifetime. Upon the death of the owner/grantor, the Trust would continue assuming that the owner had not revoked it during his or her lifetime. During the Grantor’s life, he or she would pay all expenses of the vacation home. After the grantor’s death, a successor trustee would “step into the grantor’s shoes” and would continue to hold the vacation home for the benefit of the grantor’s children who could use the property during their lives. Such successor Trustee can be a child or all children of the Grantor.
The Grantor can provide for the trustee to sell the property at any time and distribute the proceeds to the children then living in equal shares and the trust could terminate on the death of the last surviving child. In other words, the owner/Grantor can craft the ownership and use of the vacation property in accordance with the specific needs and circumstances of the family.
Thus, transferring a vacation property to a Trust can enable the use and enjoyment of the property to continue without causing the issues that would normally result from group ownership of a property.
This arrangement for trusts holding vacation properties for the benefit of children or grandchildren is fairly standard and could work well with proper drafting of the Trust or Will instrument.