Planning for the Family Vacation Home

January, 2007

Planning for the Family Vacation Home

One of the most difficult assets to plan for is the family vacation home. For many families, the vacation home is an important center of annual family activity, with multiple generations of family becoming emotionally invested in the property. If the property is located in a desirable area, it’s value can often grow larger than any other single family asset. Once the eldest generation passes away, however, conflicting desires over what to do with that valuable asset may cause family unity to fray.

Imagine that two siblings inherit a family vacation home equally and with no advance planning. Each child would become equally responsible for the costs associated with the property but without any feasible mechanism for ensuring that each sibling pays her fair share. The siblings may even disagree over what “fair share” means, especially if one makes substantially greater use of the property due to proximity, lifestyle, or any other reason. Tensions may easily heat up over the issue of scheduling, especially around major holidays. It may even be that one sibling would prefer to sell the place and use her half of the proceeds in some other way, perhaps to purchase a vacation home of her own elsewhere. Without advance planning, conflicting interests could quickly turn into outright conflict.

Serious discussions of these and other issues ahead of time can lessen the eventual tension. Preferably, the adult children will be involved in those discussions so that areas of future conflict can be identified and addressed. After all, if the children will eventually become partners in this major financial investment, it only makes sense that they take part in the negotiations. If this is not acceptable to the older generation for some reason, then at least the older generation can impose their own ground rules for resolving later differences.

A sound plan for the vacation home should involve a written agreement, perhaps in the form of a limited liability company operating agreement, a trust, or just a family contract. Rules for the use of the property should be adopted, addressing such issues as scheduling, rent, pets, and use by outsiders. Management responsibility should be decided, and a mechanism for funding the maintenance costs should be adopted. Families may also wish to restrict each member’s ability to transfer his or her interest in the family home, so that a divorce or a bankruptcy in the family does not introduce a new and unwelcome co-owner.

With advance planning, a family can develop a program to ensure continued happy ownership of a valued family vacation home for the next generation, and beyond.