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Estate Planning for Family Vacation Homes

Many families have purchased (or have inherited) family vacation homes at the Oregon Coast, Sunriver, Black Butte or ski cabins on Mt. Hood.

While these family vacation homes can create wonderful family memories, keep the extended family together, they can also be a source of contention when the owners pass them on to their children and grandchildren.

Some children want to keep and continue to use the homes and others (particularly those who live out of state) use them less often and are more inclined to sell their interest.

How do you reconcile the goal of family fun, family reunions and vacations with the practical realities of operating and maintain the family vacation home?

Some recommendations:

  1. Talk to your children (or your siblings if you have inherited a family vacation home). Find out how much they would use the home and whether they can afford to maintain their share of the home.
  2. Itemize the expenses and costs of maintaining the home. This should include repairs, utilities, insurance, property taxes, cleaning fees and any HOA dues.
  3. Estimate capital needs and upgrades needed for the home including roofing, HVAC, appliance replacement, painting, siding, carpeting and flooring, plumbing and develop a schedule for replacement. Create a capital reserve fund and contribute a monthly allocation to the capital reserve fund to avoid surprises and large assessments when the items need to be repaired or replaced. Plan on inflationary adjustments.
  4. Consider forming a family vacation home LLC to hold the property. Require the interests to be held by family members and their lineal descendants. What about ex-spouses who want to come with the grandchildren? Determine who will be the managers of the LLC.
  5. Parents may want to give some of the LLC interests to their children before death to reduce estate taxes. Otherwise, leave the home to the children in a revocable or irrevocable trust with a designated trustee.
  6. Parents may want to consider establishing a family fund in their estate plan for maintenance and improvements of the family vacation home. Consider enough funds for 10 or 15 years of estimated annual expenses.
  7. Develop a rotating schedule and calendar for peak vacation weeks and holidays so participating families know in advance, what their weeks will be each year.
  8. Consider renting out the house when the family is not using the property.
  9. Require the home to be professionally cleaned between visits or provide a written cleaning program. Nothing can cause more family friction than finding a dirty home or garbage left for the next person. Adopt rules for the use of the home.
  10. Create events that bring the family together i.e. a 4th of July celebration, a fishing trip, a dad’s weekend, or a sisters’ weekend without husbands or children.
  11. Make rules for guests. Consider not allowing guests to use the home if a family member is not present.
  12. Establish a valuation formula if a family member wants out and a payment plan to pay off the selling family member’s LLC interest.
  13. Do not allow any new mortgages or encumbrances on the property if it is paid for without approval of a supermajority of the members.
  14. Provide for the situation when a family member cannot afford their share of the costs or a needed assessment. Is it a temporary situation due to a job loss (giving them a grace period) or a permanent inability to pay which would require a sale of their interest?
  15. At some point the home may become too much of a burden for the surviving family members. Hold a final family reunion to cherish all the family memories, sell the property (say with 2/3’s approval) and distribute the proceeds to the owners.

If you have estate planning  and need legal assistance, please contact one our estate planning attorneys through the Buckley Law website.

Rob Le Chevallier

Rob Le Chevallier is a Shareholder and Senior Counsel with a law practice that encompasses business law, business formation, estate planning, trust administration, real estate law, and corporate financing. As Senior Counsel, Rob consults with clients, adding value by bringing his knowledge and experience to the situation. He is also available to make client introductions to other Buckley Law shareholders and be an “ambassador” for the firm to various civic and community organizations.

The information contained in this article is for informational purposes only and does not constitute legal advice. This information is not intended to create an attorney-client relationship, and the receipt or viewing of it does not create or constitute an attorney-client relationship. You should not act upon any information contained in this article without consulting an attorney for individual advice regarding your own situation.