How to Help Clients Pass Down a Vacation Home
Your client has a family vacation home they want to pass down to their children. What could go wrong? Plenty, according to a recent article in The New York Times. The article points out that while inheriting a property can be the only chance for young adults to own an expensive vacation home, it can be a difficult asset to inherit and can cause friction within a family. It notes that vacation property has been named by the personal finance website Kiplinger as one of the seven worst assets to leave to your heirs. Arguments can arise over issues such as whether to sell the home or who’s responsible for paying certain expenses. Some children may have an emotional attachment to the property while others don’t. So how can practitioners help clients navigate these fraught issues?
Here’s some advice from Avi Kestenbaum of Meltzer, Lippe, Goldstein & Breitstone, LLP:
Start with a Candid Conversation
Practitioners should advise clients to confirm that their children will want to use the vacation home after the clients are no longer living and engage the children in a candid and truthful conversation. Many parents have unrealistic expectations and don’t understand that the children may not be interested in keeping the home in the family and may prefer to sell it. Furthermore, the parents may have an unrealistic expectation that their children and grandchildren will continue to gather on holidays, family occasions and vacations as they did when the parents or grandparents were alive. After this conversation, the parents may realize that their hope and goal is for the children to share and use the vacation home, but the children don’t share the same wishes.
Consider a Sale
If clients still insist on passing the vacation home to their children, warn them that doing so could create arguments among their children and suggest they consider selling the home during their lifetimes or having the executor sell it at their passing.
If Only One Child Wants the Vacation Home
If one child wants the vacation home and the others don’t, the likelihood of future discord is minimized. The parents could consider leaving it to the child who wants it and give an equalizing amount to the children who don’t. Even this strategy needs to be carefully planned and thought out so that no child feels shortchanged in terms of value or love, which could lead to future disputes among them. The parents should discuss this plan with their children. Kestenbaum says that he’s tried drafting a sharing agreement involving a limited liability company that owned the property, with the LLC owned by a family trust, but when the clients saw how complicated it was getting to do this correctly, they decided to abandon the project. In practice, even well-drafted and sophisticated sharing arrangements and documents can be complicated and still lead to discord and hurt feelings.
