Having a plan for the vacation home helps avoid problems in the future.
Family vacation homes evoke memories of going for a canoe ride on a lake, going for a walk along the beach or roasting marshmallows around a campfire—time spent together bonding as a family. However, when you have a vacation home, there is a need for careful planning, or it can become a problem with the potential to create divisions between family members.
The purpose of this Senior Tip is to discuss the different types of ownership available for family vacation homes. Future tips will address some of the pros and cons related to ownership of vacation homes.
If the family vacation home has been deeded to the children by the parents or transferred by Will or Trust, the children most likely own the property as tenants in common. Here are a few things you should know about this type of ownership: each tenant in common owns an undivided interest in the property; each tenant has a right of partition—which means each has a right to force the property to be divided or sold; each tenant can transfer his or her interest to a third party by deed or to a spouse or child in a Will; and a tenant in common has no legal obligation to pay rent or reimburse other tenants for the use of the vacation home.
Joint tenancy is another form of joint ownership. All the above rules for tenants in common apply to joint tenancy, but joint tenancy has a right of survivorship—the final survivor of all the original tenants will become the sole owner of the property. This can surprise family members in the future, when they learn that their family’s ownership in the vacation home ended on the death of their parent.
Family vacation homes are sometimes owned by Revocable or Irrevocable Trusts. The management of the vacation home and the eventual distribution of the home when it is sold is set out in the terms of the Trust. The Trustee of the Trust has the duty to manage the vacation home according to the terms of the Trust.
The final type of ownership is a Limited Liability Company (LLC). An LLC is formed by filing Articles of Incorporation with the Secretary of State’s office. This is a one-page form that lists the names and addresses of the members and the Registered Agent. In Idaho there is a $100 filing fee. Once the LLC is set up, the vacation home is deeded to the LLC. The advantage of a Limited Liability Company is that it limits the liability of the owners and is taxed like a partnership.
Limited Liability Companies are governed by an Operating Agreement that lays out how the vacation home will be managed, how a member’s interest can be sold and how the LLC will eventually be dissolved. For example, the Operating Agreement could state that the family would keep the vacation home for a certain number of years and then sell it, or it could state that it is to be sold on an event like when the first of the original members dies. Understanding and reaching an agreement on the terms of the Operating Agreement may take time and effort but resolving issues up front will avoid problems later.
The vacation home is a place where families meet together and enjoy good times; however, as circumstances change, it’s wise to have a plan in place to make sure it continues to be something that brings the family together.
Tom Packer is an Elder Law Attorney serving all of Southeast Idaho. As part of his law practice, Tom offers Life Care Planning to deal with the challenges created by long-term illness, disability and incapacity. If you have a question about a Senior’s legal, financial or healthcare needs, please call us.