Tap into available strategies to ensure a smooth transition for those you love.
Whether sporting a lakefront view or nestled in a mountainside perch, your vacation home is a place where special moments happen and important memories are made – a place where your family comes together. But, if you’re not careful, the gift of a vacation home can be a source of conflict for those who inherit it, even spurring battles between family members. One of the best ways to avoid family discord is to plan, and plan early.
Your advisor can help answer these questions and guide you through the process, raising concerns you may not have considered and discussing available strategies to establish a plan that satisfies each person involved.
Here are four estate planning strategies to consider:
The simplest way to pass your vacation home on is to leave it outright in your will to specific children or family members. While this is the simplest option for you, however, it may lead to headaches and conflict for your loved ones. The added complexities that come with an outright transfer often spark disagreements and resentment between those who receive the property. Equal ownership means all owners have an equal responsibility to pay for associated costs, and each has a say in decisions concerning the home. Who can use it and when? Should it be sold and for what price? What projects should be invested in to fix it up? These questions and more can lead to contention between family members, and conflicts are not always easily resolved.
An LLC can offer tax advantages while providing you with greater control over the property, even after shares are given to your children. You serve as the manager of the LLC, enabling you to pass ownership of the home to the LLC itself, and then transfer shares to individual family members. Those included in the LLC create a detailed operating agreement specifying who has access to the home and when, as well as who’s responsible for taxes, upkeep and other expenses.
QPRTs allow you to transfer your property and continue to live there for a specified number of years, while avoiding federal estate taxes and mitigating federal gift taxes. You continue to pay the carrying costs of the home, including real estate taxes. At the end of the term, the property passes outright to those named as your remainder beneficiaries with no estate tax.
This irrevocable trust owns the assets held by it for transfer tax and state law purposes, but the assets are treated as owned by you, the individual grantor, for income tax purposes. No loss or gain is recognized during the sale of an asset by a grantor to a grantor trust. The trust structure also can provide rules regarding sharing use and expenses among your loved ones.
It’s more than possible to incorporate your vacation home into your estate plan in a way that works for everyone. Your advisor and tax professional can help as you decide what to do with a home that has long served as a place of connection and communion for you and the ones you love. Be sure to discuss your particular family dynamics, beneficiary circumstances, anticipated operating costs, intended use and liabilities, desire to keep tangibles and furnishings on the property, and the tax consequences for individual beneficiaries.
Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.