- July 28, 2015
Spell out in writing how your vacation property should be used
You are fortunate enough to have a family vacation home and want your family to enjoy it after you die. Your good intentions, without proper planning, may lead to disputes that could frustrate, if not extinguish, your hope for continued family fun.
Your estate plan already directs where your assets should go upon your death. Why not spell out how your vacation property should be used as well?
We have worked with clients to tailor property sharing arrangements based on their specific family dynamics to reduce or eliminate family friction. While each family situation is unique, we have developed several universal guidelines for sharing a vacation home. Here are a few:
Put it in Writing. Without written directions, controversies are more likely to arise. Using a written agreement as a guide, family members will be in a much better position to handle the challenges that will inevitably arise from the responsibilities connected to shared vacation homes.
Use of Home. Your plan addressing your family members’ use of the home should be fair and balance the interests of all generations. For example, we help families create schedules that permit family members to pick dates on a rotating basis, with the older generation having preference over younger generations. Family members may also agree on times when anyone can visit the property, such as weeks when the entire family gathers for holidays or birthdays. The actual design of any selection process should be determined by the family’s primary decision makers and then spelled out in the agreement.
Taxes and Maintenance. With respect to any vacation home, someone will have to collect funds and pay the taxes and maintenance expenses. The task of collecting money and paying taxes and expenses is often not addressed, leading to unequal payments, haphazard maintenance, and, inevitably, hard feelings. We recommend that the agreement provide for the election of one family member to act as a property manager. This can allow for a more efficient and fair collection of funds and better organized maintenance. In turn, the manager may be rewarded with preferential selection of home use.
Escape Clause. Most likely, there will be a child or grandchild who does not share the desire to use, keep and maintain the vacation home. The agreement should provide descendants with a means to cash out their portion of the home and an agreed upon way to determine price. They can base the cash-out payment on a percentage of current market value. If those who want to keep the vacation home cannot fund the buyout, then the agreement may call for a deferral of payment with interest and a lien on the property, or for a sale of the home.
Options to Purchase. Many family members become concerned that an interest in their vacation home might pass outside the family, thereby giving a non-family member a right to use it. This can be addressed by providing family members an option to purchase an owner’s interest should a child or grandchild attempt to sell their interest or transfer their interest upon death to somebody outside the immediate family.
Arbitration. In the event a dispute among family members arises, the agreement can contain a provision for arbitration of the dispute in lieu of a court proceeding. Arbitration can be faster, less expensive, and will permit a resolution in keeping with the family’s wishes. It can also help maintain civility during a sensitive time.
While heading to your retreat to get together with family this summer, consider spelling out in writing the terms that can secure the continued use and enjoyment of your home for generations to come.
This article was prepared by Marty Ryan and Gerry Ring. Marty is an estate planner with 24 years experience. Gerry is an estate litigator who has handled numerous disputes involving property sharing. If you have any questions about the preparation of a vacation home agreement, you can reach Marty at 312/840-7060 or email@example.com or Gerry at 312/840-7014 or firstname.lastname@example.org.