Your family-owned vacation home can be a relaxing refuge—especially during the COVID-19 pandemic, when options for travel are limited. However, it’s important to have a clear plan and solid ground rules that all the members of your family can agree to—otherwise, conflict and tension could ruin your vacation, or even result in the selling of your home.
Clarify ownership
Family members sharing a home are generally more ready to accept decisions about the home’s usage or disposition if they know those decisions are coming from those who hold legal title. As such, it’s important to make sure that all family members understand who actually owns your vacation home.
You’ll also want to consider the form of ownership carefully if the home has multiple owners—such as when several siblings share ownership. You may wish to hold the title to the home in a family limited partnership (FLP), so that you can use FLP interests to allocate ownership interests to family members. Or you can even design the partnership (or a separate buy-sell agreement) so that it helps to ensure that the home stays in the family.
Avoid family disputes
Disputes between family members most frequently arise when there are conflicting assumptions about who’s responsible for upkeep and cleaning, how and when the home may be used, or how the property will eventually be transferred and sold. Agreeing to a firm set of rules that clarifies who may use the home and when, as well as responsibilities for maintenance, cleaning, and repairs can help you to avoid these disputes.
It’s also critical to establish rules for rental activities if you’re planning on renting out the home as a source of income. There are tax implications for renting out a vacation home that depend on several factors, such as the amount of personal use and the number of rental days per year.
Make a plan for the future
If an owner dies, divorces, or decides to sell their interest in the home, what happens next will depend on who owns the vacation home and how the legal title is held. If the home is owned by an individual or a married couple, the relevant estate plan or divorce settlement will dictate the disposition of the home upon death or divorce.
By contrast, family members who own a home as tenants-in-common are generally free to bequeath interests to heirs or sell their interests to whomever they choose. Under certain circumstances, they may even be able to force a sale of the entire property.
If the owners hold the property as joint tenants with rights of survivorship, any individual owner’s interests will pass automatically to the surviving owners at death. If the owners hold the home as an FLP, however, there is a great deal of flexibility in determining what will happen to an owner’s interest in the event of death, divorce, or sale.
Contact us today
If a vacation home has been in your family for generations, you’ll likely want to handle it carefully— and do everything possible to hold on to it for future. Contact us today—we can help you develop a plan.