If you own a vacation home, it may have great significance to you from a personal, family, financial and emotional perspective. How and whether that home will be passed on to others is a serious concern that can result in extremely disruptive and financially ruinous differences among your family. Thus, planning for how, when and whether that home will pass to your loved ones is essential.
For example, some of your family members may have very strong emotional attachments to your vacation home, while others may not. Some of your family members may be able to afford to travel to and use the vacation home frequently, while others may not. Some of your family members may be able to afford to pay their share of ongoing taxes, insurance, maintenance and repair of the home, while others may not.
Following are some important points to consider in succession planning for your vacation home.
- Have an open discussion with your intended beneficiaries to find out their interest in ownership of the vacation home. Discuss their ability to pay expenses and look after the property, as well as their expected use of the property.
- Find out what the potential tax burden associated with the vacation home will likely be, and consider how this liability will be funded. Remember taxes or fees may be due at the time of transfer as well as on an ongoing basis. If there is a liquidity issue, consider available options, such as life insurance if the tax burden will not easily be payable by your beneficiaries or estate.
- If you are contemplating making a gift of the vacation home to family members during your lifetime or on death, legal and professional advice should be sought on how best to plan and structure the gift.
- Consider applicable options in your situation to passing down your vacation home, including providing a flexible mechanism in your will allowing your beneficiaries the option to purchase the vacation home or receive it as part of their share of the estate.
- Consider a co-owner agreement for joint owners/beneficiaries of a vacation home.
- Consult a professional advisor before purchasing a vacation home located in another jurisdiction, particularly in another country. If you already own one, seek professional advice on succession planning options.