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Estate Planning Alert: Planning for the Vacation Home
You may wish to have a vacation home retained in your family after your death for the use of future generations. Careful planning is required, however, to address such issues as the use of the property, the payment of expenses and future transfers of interests in the property. Failure to plan properly for the vacation home invites family conflict, possible litigation and significant financial loss to the family.
Sometimes the above issues can be addressed by special provisions in a trust. Often, however, formation of a limited liability company (LLC) to own the property is preferable, not only to address the above issues, but also to protect the personal assets of the LLC members from any liability arising out of ownership of the property and to protect the LLC property from creditor claims against a member of the LLC. Ownership of the property by an LLC also facilitates regular gifting of interests in the property in order to reduce estate taxes.
The LLC operating agreement can include provisions addressing:
- when and by whom the property can be used;
- whether outsiders will be allowed to use the property, and whether rent will be charged;
- how maintenance, repair and improvements will be handled and funded; and
- what happens to a membership interest if a member wants out or dies (perhaps an optional or mandatory buyout).
The vacation home also may present estate tax reduction opportunities. Techniques such as gifting, a family limited partnership (FLP), a qualified personal residence trust (QPRT) or a conservation easement might be considered.
If you have any questions or concerns regarding vacation property, please contact one of our estate planning attorneys.