• 06
  • February
    2012

Memories of sun-kissed days on the shore, or perhaps cozy weekends in the thick of the woods should not have to dissolve as the generations advance. But the transfer of a vacation home from parents to children and grandchildren can be more complex than many property owners might imagine.

With so many ideal locations for vacation homes in New York, New Jersey and beyond, many area residents have second homes they would like to keep in the family. Important considerations, however, come into play when a home is transferred to children or other family members.

The Structure of Sharing

The owner of the vacation home will want to consider whether some of the intended recipients of the home will want to sell their shares - and whether the recipients will be able to share with each other. If one recipient wishes to sell her share, for instance, other assets from the estate could be used to pay for it.

In many cases, setting up a structure that will help the transferees pay for maintenance is beneficial. Repairs and maintenance can be costly. The structure should also address how the home is to be shared, because certain holiday weekends may be coveted by all.

A trust can be set up with a trustee who manages the property, including making decisions about repairs and maintenance. The trust may be funded with life insurance. Depending on what type of trust it is, it can provide benefits surrounding the gift-tax exemption and ensure that the property stays in the family for years to come.

The property can be held by a limited liability company (LLC) that is in turn owned by the trust. The LLC could protect members from state estate taxes, and it can be useful in setting out the rules and establishing the maintenance funds for the property.

The Importance of Solid Planning

For New Jersey and New York owners of vacation properties, planning early is vital for passing the second home to the second generation. Doing so will allow the new owners to enjoy the sunset, rather than arguing about whose turn it is to replace the light bulb on the porch.

Source: The Wall Street Journal, "Who Gets the Vacation Home?" Kelly Greene, Jan. 7, 2012