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4 estate planning concerns for clients with vacation homes

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Memorial Day marks the moment when we turn the corner into summer, and many of your clients are now making plans to spend time in their summer homes. People tend to see the recreational and investment value of a vacation home, but not necessarily how it might fit into an estate plan.

A top-flight advisor should be on the lookout for the pitfalls and opportunities such an investment property provides. Your clients will appreciate that you’re looking down the road for them. Here are some of the issues you may want to bring up.

House title

First and foremost, whose name is on the title? When two spouses hold a title jointly, there are survivorship rights to be considered. If both spouses’ names are on the title, in most states, the property passes directly to the surviving spouse upon the death of the other spouse. If the client intends the property to pass to one or more children, it may make more sense to hold it in one spouse’s name.

If the client is buying the property with co-investors other than a spouse, it will be necessary to work out whether it’s being held with rights of survivorship — in which the remaining co-owners automatically inherit the decedent’s share — or as tenants in common, meaning the decedent names who inherits his or her share of the property.

House fight

There’s also the question of who will get the property after your client, and how that transfer should be structured. Real estate left directly to multiple family members automatically results in a tenancy-in-common ownership, unless otherwise specified. That can create issues. If one owner in such an arrangement wants to sell his or her part and the others don’t want to buy up that share, they can go to court to force a sale of the property. With tenancy-in-common ownership. one tenant can also renovate the property, rent it out to a third party, or sell out his or her share, without needing any sort of permission or agreement from the other owners.

Obviously, it’s hard to look down the generations and figure out how co-owners are going to get along. One option is to create a limited liability company that owns the vacation home. An LLC can set up a framework for maintaining the property, scheduling use by various family members and setting limits on the transfer of pieces of ownership. A client can even grant interest in the LLC that owns the vacation home to other people while still retaining management decisions for the LLC.


There are other concerns that even knowledgeable clients may be unaware of. Many people own summer homes in a neighboring state, which can cause a lot of confusion when it comes to one’s estate, if the will isn’t carefully crafted. If the client owns real estate in a different state at the time of death, the executors of that person’s will may be required to go through a second probate proceeding in the state where the property lies, in addition to the probate proceeding in their home state.

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Home gift

The client also may wish to pursue the idea of giving away the summer home before his or her death. A vacation home that has been turned into an LLC can be gifted to children, in part or in whole. Another alternative is to create a qualified personal residence trust, or QPRT, an irrevocable trust to which the client can transfer ownership of the vacation home, while still retaining the right to use it for a specified number of years. As long as the client survives that term, he can pass the home to his children in equal shares. If the client dies before the end of the QPRT’s term, the interest in the property simply goes into his estate and is passed down according to the will.

Many of these plans may be more complicated than your clients want to deal with right now. But at least you can plant some estate planning seeds for them to think about while they’re enjoying their summer away.

For more estate planning tips, see:

Endangered trusts: Bring them up with clients now

The widow planner

5 ways to help middle-class clients with estate planning