Owning a vacation home is a special privilege—but deciding what happens to it after you’re gone takes careful planning. Many parents hope to keep the home in the family, but doing so can be more complicated than expected.
While meant to be fun and relaxing places to get away from everyday life, vacation houses can cause problems between siblings after their parents pass away. Some siblings may want to use the house, while others may need cash and want to sell. Disagreements can also arise over maintenance costs, taxes, and scheduling use of the home.
One common option is to leave the property to your children in your will. However, if they inherit it equally as joint tenants or tenants in common and one sibling wants out, that sibling can force a sale if the others can’t afford to buy them out.
Before deciding to pass the home on directly, consider holding a family meeting. Ask your children if they all want to keep the property and discuss logistics such as upkeep, taxes, and scheduling. Putting a written agreement in place, including a buyout plan, can help avoid future disputes. The buyout amount could be less than market value, and payments can be made over time; it's really completely up to the family.
Other Options:
Instead of giving the home outright, you could place it in a trust or a Limited Liability Company (LLC). LLCs are increasingly being used for vacations homes. Using an LLC allows parents to transfer interest in the LLC to their children while still retaining control. Parents can use the annual gift tax exclusion to slowly gift their children additional interest in the LLC each year. The LLC agreement can designate a property manager, provide instructions on maintenance costs and property taxes, and include buyout options. Property in an LLC is also protected from creditors.
Another option is to put property into a Qualified Personal Residence Trust (QPRT), which allows parents to live in the home for a set number of years, after which ownership transfers to the children. The main purpose of a QPRT is to reduce taxes on property, but QPRTs are tricky and must be set up just right or there will be no tax savings.
