Owning a family vacation home is a nice tradition and creates a life-time of memories for you and your children. If you wish to continue that tradition into further generations, you need to protect the family vacation house with good estate planning.
Trusts or business entities are used to provide asset protection, pay taxes and maintenance fees, and keep the peace regarding responsibilities and usage. Be careful to accurately estimate future expenses and include these funds, if your children may not have the funds to maintain the property on their own.
Do not use joint ownership with a child or between children. Joint ownership commonly leads to disinheritance. In addition, it has other pitfalls:
- If you own the vacation home with your child, it is subject to seizure by your childs creditors. There is no asset protection.
- If your child becomes estranged or develops an addictive issue, he can force the sale of the property.
- When you die, only that child will inherit the vacation house; this disowns your other children.
- When you put a childs name on an asset such as the vacation house, you are transferring your tax basis. If the asset is passed at your death, your children would receive a step up in basis to the date of death value and save on taxes at subsequent sale.
- If you give the house to your children and they own it in joint names, the surviving child will own the vacation house, disowning all grandchildren except through that line. In addition, the value of a deceaseds childs share would be included in his or her estate so the surviving spouse and grandchildren would pay taxes on the share but have no rights to it.
- If your children own the house jointly, its subject to the creditors of all the children.
If you have a family vacation home that youd like to keep in the family, consult with an estate planning attorney to transfer the house to your children in a business entity or trust.