In 2018, around 7.5 million second homes existed, which is about 5.5% of all homes. These homes are important because they hold cherished memories for you and your family. To make sure that these memories and your property are protected, it’s crucial to consider the following points about estate planning.
Estate Planning for Vacation Property: Ownership and Inheritance
If you own a vacation property, what happens to it when you pass away depends on how it’s currently owned. If you are the owner or co-own it with others, you need to decide what happens to your interest in the property. If you co-own it with someone else and you have joint tenancy or own it with your spouse, your interest will automatically transfer to the remaining owner without court involvement.
If a trust or limited liability company owns your vacation property, it will still own the property after you pass away. The trust or operating agreement may have instructions on what will happen to the property at that time.
Estate Planning for Property Owners: Ensuring Your Wishes Are Honored
Creating an estate plan allows you to make decisions about what happens to your money and property in a legally binding way. If you don’t have a plan and your property isn’t owned jointly, your state will decide what happens to it and your loved ones will have to go through the court-supervised probate process. If you own property in a different state, your loved ones may need to open two probate cases. There are different ways to handle your vacation property, so it’s important to consider your options.
-
Give the property outright to a loved one
-
Leave the property outright to a group of people
-
Give the property to a group of people as tenants in common and create an ownership agreement
-
Prior to your death, transfer the property to your revocable living trust to be held for a long period of time or indefinitely
-
Prior to your death, transfer the property to a special trust that owns only the property to be held for a long period of time or indefinitely
-
Prior to your death, transfer the property to a limited liability company to be held for a long period of time or indefinitely
-
Instruct your trusted decision maker who will wind up your affairs to sell the property.
Is Your Beneficiary Prepared to Take Over Your Vacation Property?
Your vacation property comes with happy memories, but also with a lot of responsibilities. If you decide to leave the property to someone after you pass away, they will have to take on financial responsibilities like mortgage payments, utility bills, and property insurance and taxes. If you want your beneficiary to keep the property, you need to think about whether they can handle these responsibilities. If not, they may be forced to sell it early.
Owning property with your children may also seem like a good idea, but there is a possibility that they may not get along in the future. This means they need to work together to maintain the property by communicating, agreeing, and contributing equally. An estate plan can help prevent problems by outlining a plan that everyone agrees to follow.
Estate Planning: Turning Your Wishes into Reality
To ensure that your wishes are followed and that your loved ones are prepared to maintain the property, there are several steps you can take.
First, you need to legally document your wishes and plan for any possible scenarios.
Second, if you are concerned about your beneficiaries being able to afford the property’s upkeep, you should consult with a financial advisor to create a plan that includes setting aside money for maintenance. Additionally, you should speak with an insurance agent to make sure the property is properly insured and consider acquiring life insurance to provide additional financial support.
Lastly, meet with a tax adviser to understand any potential tax implications of transferring the property during your lifetime or after your death.
If you want to know more about how to safeguard your vacation property and ensure that your desires for it are implemented, please get in touch with us.
