A vacation home is a special place for a family. You buy a beach house or a cabin at the lake with visions of the long, lazy summer days and holidays you’ll spend with your children…and eventually your grandchildren. You dream of the memories you’ll make, and you look forward to passing the home on to your children and grandchildren so that they can do the same.
Sadly, without a well-drafted estate plan, these hopes can turn to disappointment.
For instance, if you leave behind a Will, your estate will be subject to probate. Probate is the court process of changing the title from a deceased person to the rightful beneficiaries. Depending upon the state, it may be expensive or time consuming. If the property is located in another state, it would necessitate yet another proceeding in that other state, called ancillary probate. This is a separate probate proceeding, complete with its own timetable, fees, and paperwork that must be completed in the state where the vacation property is located before the property can be distributed to the beneficiaries named in your Will. Probate, including ancillary probate, can be avoided by establishing a revocable trust that then includes your vacation property. This strategy can save your loved ones time, money, and hassle, because property held by a trust does not have to go through probate.
Even if you avoid probate, how can you ensure that your vacation home will remain in your family – and that it will not become a source of conflict for your children and grandchildren? Consider a common scenario:
Your daughter is financially stable and looks forward to using the property on a regular basis. Your son, however, has creditors to worry about and sees the cash value of your vacation home as a means for paying off his debt. In this situation, leaving the property to your children in equal shares invites conflict.
If your son, already in debt, decides that he cannot afford the maintenance and taxes on the property, he could decide to go to court to force its sale. This might leave him with enough money to pay his creditors, but it would be the end of your dream, leaving your daughter and your grandchildren without a family vacation home full of cherished memories.
One way around this problem might be to leave the vacation home to your daughter while leaving other assets of equivalent value to your son. Even if both of your children want to keep, maintain, and use the vacation home – and you should ask them about their wishes – it is wise to include specific terms for its use in your estate plan.
Another option is, at your death, to have your revocable trust keep the vacation home and sufficient funds for its upkeep in a continuing trust. That way, your son in the example above, could not force the sale of the vacation home to pay off his creditors.
By: The American Academy of Estate Planning Attorneys