Making Cents: Keeping the vacation home in the family
John P. Napolitano, business columnist for Patriot Ledger.
As you close up the vacation home for the season, reflect back on all the great memories and the stories that your grandchildren are carrying with them to their neighborhoods. The beach, hikes and bonfires will last with them forever. These memories are enough to make you want to preserve this home through the generations, and let the memories turn into legacy.
Your children, however, are probably having a discussion with a little different flavor. They are wondering how their older brother, who hasn’t held a steady job in 10 years is going to pay for his share of the maintenance. Your daughter in Scottsdale, Ariz., is wondering why she has to pay for the maintenance of the home all year round when she only plans to be there for two weeks in July. And your middle daughter, who lives nearby both you and the vacation home, is concerned that all of the maintenance and seasonal responsibilities will fall upon her.
If you are determined to turn the memories into legacies, try these simple steps to accomplish your vision for a family vacation home that endures the generations, economies and tax law changes.
Consider placing the title of the home in a trust. Work with a good estate planning attorney to draft the provisions giving you the greatest chance of accomplishing your objectives. If you simply leave the home to your children directly in equal shares, you are inviting a host of potential problems.
The trust needs a trustee, who can be one of the beneficiaries. Be very specific about the duties and powers of the trustees and give careful thought to how t successor trustees would be chosen.
Consider spelling out rules regarding usage of the home. A fair and equitable method that doesn’t give all the “prime time” to any one child. Spell out the financial obligations of the beneficiaries and the consequences for any one beneficiary’s inability to meet their fair share.
This all sounds simple when you consider your three children who all get along so well. But add a spouse, a few grandchildren each and all of a sudden you have a dozen or more stakeholders with an interest in the terms of the trust.
Consider endowing, or funding the trust with enough cash to maintain the home in perpetuity. For some, this may not be possible. You may look into a life insurance policy to fund this trust. If you can’t afford the insurance or the endowment, understand that your vision may be beautiful, but not practical.
John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at firstname.lastname@example.org or on Facebook as JohnPNapolitano.