As someone who has been in the estate planning world for 30 years I have had many clients ask for creative ways to leave vacation homes to their kids and grandkids while minimizing taxes. With that in mind, there are some great techniques, from QPRT’s to LLC’s, to pass assets down at discounted values, which I have used many times to great results. But after all my experience, I can honestly say that keeping a vacation home in the family may sometimes create more discourse than harmony.
Parents often imagine that their grown children sharing a house will keep the family close to each other going forward. This does not take into account that when leaving a vacation home to children with different financial means, there can be disagreements around what should be spent to maintain the home when repairs are necessary or when things begin to fail. Even real estate taxes can cause strife when one member uses a house more than the others and fair delineation of payment for taxes or maintenance costs comes into question. One way to handle this is for the parents to set up an account along with the gifting of the house with enough funding to handle these issues for a long time to come.
There are often further issues around usage of the house if it is not large enough to hold everyone and their extended families at the same time. Do you alternate seasons? Weekends? Does the family communicate well enough to ensure that everyone feels like they have equal access? If the house is large enough to accommodate all, then issues can still arise around cleanliness, inviting guests, food and meals, and sometimes even parenting styles in the shared space.
What I suggest, is that even if a house can be left in a tax efficient and financially unburdensome manner to the next generation, there can be situations where adult children, with or without their own families, are placed in a position of “living together” when it may promote more harmony to sell the property at the parents’ death. One family member may also decide to buy it from the others before it leaves the estate, which keeps the house in the family, but eliminates any questions of responsibility.
Clear and thoughtful communication ahead of time can help determine a best course for your family, but sometimes it may make more sense to let the kids decide how and if they wish to vacation together. When facing such decisions, keep in mind, together is not always better.