Passing on your family vacation home to your children
Do you own a vacation home that you might want to pass on to your family members if something happens to you? If you don’t have a plan in place yet for your vacation home, it’s understandable. Maybe you’re renting it out, or maybe your family just doesn’t visit it that often.
You don’t want your family to disagree over who should get your property when you pass away. And you also want to ensure all generations of your family can enjoy use of your vacation home.
To guarantee that your treasured family getaway is passed on to the people of your choosing, here are 3 estate planning considerations to think about:
1. What’s the best way to transfer ownership of my vacation home?
With any real property, there are several ways to transfer ownership to family or friends. The answer to this question depends on your situation. Take a look at which option might be right for you.
A last will is a legal document that names an executor and instructs him/her/them on how to handle your estate after your death. Upon your death, your will reflects your final wishes. It is the executor’s job to collect and manage your assets, pay off your debts and expenses, and distribute your assets to your named beneficiaries according to your will. The probate court where your will is filed must first approve your will and officially recognize your executor before your belongings (such as your vacation home) can be distributed according to your wishes.
In addition to naming your executor and picking your beneficiaries, you may name someone you trust to be a legal guardian for your minor children until they are 18. You may also choose a guardian, who may or may not be the same individual, to manage your child’s assets until he or she turns 18.
Although a will costs less and generally takes less time to finalize than a living trust, there are some disadvantages. Firstly, your vacation home and other assets are still subject to probate, which requires your executor to petition the court for approval to handle your estate as stated in your will. This process takes time and costs money, and if there is disagreement over who receives what, the process becomes even more time consuming and expensive. Probate can take years and cost thousands. However, having a will in the first place makes probate much simpler, as your family isn't left deciding how to distribute your assets since the will has those instructions already.
Secondly, a will also does not cover your vacation home if your spouse or loved one co-owns with you. If you own your house as community property, only your ownership share applies in the will. If you own property with right of survivorship (such as in joint tenancy and community property), your share goes to the surviving co-owners by law, and your will cannot change that. Additionally, the beneficiaries listed on your retirement accounts and life insurance supersede what’s listed in your will.
Lastly, the contents of your will become public record once you pass away because the will is filed with the probate court. This means that names and addresses may be revealed, and the executor’s transactions with your estate are publicly accessible as well. If privacy is a priority for you, a living trust is an alternative that keeps your estate information private.
In some cases, the low cost and simplicity of a will is not a problem for people, especially if there is a small estate involved. For people who have more assets, specific conditions for distribution, and a need for privacy, read on to learn more about a living trust.
A living trust
Think of a living trust like a safe. You can put all of your valuable possessions in there by titling each of your possessions to your trust, and choosing someone you trust to maintain your “safe” and its contents after you’re gone. In your trust, you'll also leave detailed instructions about how you want your belongings managed by the new trustees if you die. Some important assets that people commonly title to their trusts include their homes, bank accounts, stock portfolios, and collectibles, among other things. If you're thinking about a living trust, don't forget your vacation home!
With a living trust, your family can avoid probate, which is costly and time-consuming. An up-to-date trust will help your family avoid having to sort through your affairs and figure out distribution of your belongings while they are in the process of grieving. You can control the conditions and timing of asset distribution to your loved ones after you die, and since your estate won’t go through probate, distribution to your heirs happens smoothly and inexpensively. As long as your vacation home and other property are correctly added and titled to your living trust, you have a secure and reliable tool to ensure that your family can inherit your things as painlessly as possible.
The contents of a trust remain private, unlike a will. A will becomes public record after you die, and all the transactions involving your estate will become public as well. A living trust also accommodates for unexpected events that might leave you medically incapacitated or unable to communicate for yourself. With documents such as the Power of Attorney and Advance Health Care Directive, people you trust can make your medical and financial decisions for you if you lose that ability.
The primary concern that many people have with living trusts is the cost involved. In general, a will may only cost several hundred dollars while a trust can cost several thousand dollars. But for those looking in the long term, a trust can help your family avoid thousands in probate costs, which would be a possibility if there is conflict over the terms of your will, or if there is no will at all.
A revocable transfer on death (TOD) deed
The transfer on death deed is a relatively new and lesser known method of transferring ownership of your property to a person of your choosing. It is fully revocable, and free to download in Los Angeles County.
Preparing the transfer on death deed is simple and inexpensive. All you have to do is fill out the required information on the form about your identity and property, name your beneficiaries, and sign your deed before a notary public. The deed must be filed and recorded within 60 days of notarization or it becomes null.
The advantages of this method are that it does not involve probate and your vacation home is still under your full ownership before you die. It is fully revocable and you are free to sell your home at any time. However, if you own your home jointly under joint tenancy or community property with right of survivorship, those who co-own your home will legally inherit your share after your death. Unless they also file and record a transfer on death deed naming the same beneficiaries, you can not transfer your share of ownership to the person named in your deed.
If you have properly filed and recorded your transfer on death deed and you pass away, your beneficiary would still be responsible for any taxes and debts tied to your property. Also, if your beneficiary is a minor at the time of your death, a court-appointed guardian must manage your property until the child becomes legal. This process may involve additional costs. Lastly, if your beneficiary predeceases you, your property is still subject to probate if you do not have a plan to transfer ownership after your death.
The transfer on death deed may be useful in situations where there is no time or money to prepare a living trust or will, but it is wise to make sure you know all the pros and cons of this method—read more here.
2. Who should inherit my vacation home?
Whoever the beneficiary of your vacation home is, it’s important to consider someone who is capable of both owning and maintaining your home. More importantly, the person/people you choose should be willing to bear the responsibility as well. The most common choice is to pass on your vacation home to the children as a way to maintain a family possession and pass on memories.
Some factors that may affect an heir’s willingness to inherit the family vacation home include the cost of upkeep, taxes, and distance. If something happens to you and your spouse, and your children are minors, you might also consider naming a legal guardian to care for your children and maintain your property until your children are of legal age.
3. Who’s responsible for maintaining my vacation home?
Vacation homes can be costly, especially if they are not being rented out. Even if your children or family members would love to own and maintain your vacation home, the cost may make this too difficult. If you truly want to maintain your vacation home as a place where your family can retreat on a getaway for years to come, you could consider setting aside money to cover the costs of maintaining the home. Commonly, money is set aside for expenses such as property taxes, insurance, and even utilities.
If your heirs decide to rent out your vacation home both as a source of income and as a way to cover maintenance costs, they are limited on how often they can enjoy the home. Many people who pass on their vacation home to family set aside several years’ worth of money to give their heirs time to prepare for the costs involved.
Whoever you decide to be responsible for maintaining your family's treasured vacation home would have much less of a burden if there is money set aside to cover immediate expenses. They have time to prepare for the responsibility and ensure that the home is passed on for generations to come.
Are you ready to make a plan for your vacation home? Schedule a session now!
When it comes to something as important as your vacation home, you want to make sure that you consult an experienced estate planning attorney to cover all your bases and find the best method to pass on your home securely.
The trusted estate planning attorneys at The Kahn Law Firm will tailor-make an estate plan customized to your needs to ensure belongings such as your vacation home are properly secured for your family. Call (626) 765-4469 today to schedule your planning session!