Estate Planning Considerations for Vacation Property

By Robin Holzschuh, CTFA, TEP, AEP®, ATFA, CFIRS® – Vice President & Compliance Officer

Why Estate Planning for Your Vacation Property Matters

Estate Planning for vacation property could be as vital as the estate plan itself. Several generations likely have some of their fondest memories circling the family vacation spot and even the tightest knit family relationships can be flawed by a derailed estate plan. Ensuring the property is managed, maintained and distributed according to your wishes can protect not only the property, but the family bond as well.

Understanding Ownership of Land and Improvements

Key considerations are easily identified however, there could be overlooked details that might prevent the intended property transference. It is important to identify exactly how the land and the improvements (i.e. built structures) are owned. If you own the land and improvements, planning is relatively straight forward and any ownership structure should suffice.

When a Private Club Owns the Land

Planning becomes more complex when the land is owned by another party. For example, if you own a fishing cabin at a private club, of which you are a member, but the club owns the land your cabin sits on, additional steps may need to be taken in order to ensure your plans are carried out. Conversations with the club regarding your ownership intentions and review of the club by-laws will go a long way. Some private club by-laws restrict improvement ownership, in this case ownership of the cabin, by anyone other than individual members. This means even though the deed to the cabin indicates your trust or family limited partnership owns it, the by-laws restriction could make the conveyance invalid.

Addressing Location-Specific Estate Planning Issues

Other location specific issues could inhibit your estate plan. Discuss the location of your vacation property with your estate planning attorney to determine whether or not it is in a state or country that may have varying laws for inheritance, taxes, and ownership. Some states impose inheritance and estate tax that is separate from the federal estate tax with separate exemptions for each. Some countries may apply forced heirship laws that dictate how property is distributed upon death, overriding your will.

When dealing with a vacation property outside of your resident state or country, local legal advice should be sought.

Planning for Heir Management

Another detail for discussion should be heir management. Address how the property will be shared among multiple heirs including usage schedules, maintenance responsibilities, and decision-making processes. It is also worth discussing buyout options if not all heirs want to retain the property, and dispute resolution mechanisms. Discuss your intentions with heirs to help prevent misunderstandings in the future.

Conducting Periodic Reviews to Preserve Your Legacy

Taking the time to ensure your estate plan is executed as planned will help avoid family conflict and preserve those cherished memories of the vacation property. A crucial key to ensuring your plan remains on track is to conduct periodic reviews of your estate plan. Central Trust Company offers second opinion services and we appreciate the opportunity to review your documents to help identify any areas that may require additional details for smooth transference of your property.