To keep your shared vacation home an oasis, you have to plan ahead with your family members
Family vacation homes can be a lot of fun, create memories and provide a long term legacy. To preserve the property and mitigate potential family conflicts, having a transparent plan in place is critical. Here are some things to consider:
Have a Detailed Plan
Even apart from the basic housekeeping questions, there are many other issues to be dealt with, such as how the expenses and upkeep will be shared. As members of the ownership group get older, keep in mind that their responsibilities might change over time. Anticipate and discuss as many of these issues as you can.
Make It Legal
Managing real estate is a highly legalistic proposition, so have a Estate Planning Attorney draw up a contract about how the ownership will be divided, how property decisions are made, where expenses are paid from, what happens if someone exits the partnership, etc. These professionals are familiar with the many possible ownership structures, and can provide input on what makes sense from both a financial and family dynamic point of view. If you would like to talk with a Estate Planning Attorney, our clients have shared positive feedback on a handful that we can refer to you.
Know How It’s Being Divvied Up
It is almost inevitable that one member of the family will want to use the family vacation home more than others. Make sure this is accounted for and agreed upon so that it won’t cause any hurt feelings of inequity. You should also plan for family members who may end up living at the property for extended periods of time.
Set up a Joint Bank Account
The easiest way to keep track of the finances for the new property is to set up a joint bank account dedicated to it. The mortgage payment, property taxes, insurance, and any other recurring fees can be paid out of it, saving time and headaches for everyone who is contributing to that fund.
Make Sure All the Family Members Are Happy With It
Once you’ve bought a vacation property, the impulse will be strong to spend much or all of your vacation time there. Make sure everyone involved – such as a spouse who may or may not be thrilled to spend every holiday with their in-laws – is on board with this decision.
Put It in an Entity
You may want to own the property through an entity structure such as a limited liability company (LLC) or family limited partnership (FLP). These can provide a convenient way to deal with the property’s finances, formally outline everyone’s rights and responsibilities, and protect your other assets from liability in case of a lawsuit. Doing this can also help set expectations for future generations that will inherit the property.
Have an Exit Strategy
Before you get into a joint ownership situation, know how you’re going to get out. If one party wants to sell, does the other party have the right to buy their half? If so, how will the property be valuated? What happens when your parents pass away? It’s not an easy conversation to have, but it’s important to have that strategy in place before it becomes necessary. Legacy issues are very important here. If your parents pass away, does their share of the property go to you as their co-owner, or is it divided among their other children? A vacation home becomes part of the older generation’s estate, so our team can help the generations work out some of these issues.
If these conversations are awkward for your family to have, our team is always there to help.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.