A family vacation home is often a place where fond memories are made and where you can truly relax and unwind. But, what happens when it’s time to pass the property to your children and grandchildren?
Cynthia Duncan, a shareholder in The Bowden Spratt Law Firm, and Frank Norton Jr., a real estate broker and CEO of The Norton Agency, discuss a few practical and legal considerations when transferring and sharing the family vacation home.
Two Practical Considerations
House Rules – Cynthia suggests “when everyone’s still feeling great about the fact that they’ve just inherited this property from their parents, go ahead and really come up with a set of house rules.” She recommends setting expectations together and making these rules as detailed as possible to avoid future conflicts.
Sinking Funds – Like any other property, a vacation home requires maintenance, and that means another bill to pay. Frank recommends a sinking fund supported by the co-owners. “In my view, there needs to be a sinking fund established upfront as part of that agreement between the siblings,” he explains. “So that there’s money available over a period of time to replace a roof, most likely every 10 years, update a kitchen, which is a huge expense, probably every 20, 25 years.”
In addition to these very practical considerations, the experts also recommend setting up a schedule as opposed to a “first come first served” approach and determining who will handle emergency repairs, etc.
Cynthia also recognizes there is an emotional aspect to consider. “We’re dealing with both the emotional ties and family dynamics in terms of who controls the property. How it’s going to be owned is really driven by how the client answers those questions and who pays for it after the initial owner, that’s where it gets tricky.”
Most of these issues can be resolved by planning ahead.
Two Possible Legal Approaches
Creating an LLC – “A lot of moms and dads will already have the property in an LLC, just for liability reasons, some soft asset protection,” says Cynthia. A limited liability company is a legal entity that is governed by an operating agreement which is really where all the kind of rules are that govern that entity. An LLC provides flexibility for future generations.
Setting Up a Trust – Some family vacation homeowners may be interested in setting up a Trust. In this case, an irrevocable trust may be the best option because the rules cannot be changed easily by the children and grandchildren. This level of stability is very attractive to some clients.
By structuring the family vacation home as its own business and applying practical steps, fond memories in a relaxing family setting can come true for generations.
To learn more ways to protect your wealth and avoid conflict, check out our Wealth Matters radio show. If you are involved in a dispute over a will, trust, or estate, call us at 404-892-9797 for a case evaluation.
Gaslowitz Frankel LLC is Georgia’s premier fiduciary litigation law firm. We have earned a reputation for excellence across Georgia and the Southeast in providing representation to individuals, executors, trustees, investors, shareholders, and financial institutions in complex fiduciary disputes involving wills, estates, trusts, guardianships, conservatorships, and businesses.
