Planning an estate when you own a vacation home
If you own a vacation home this may be the time when you begin the trek back home, wave goodbye to the summer and early fall, and return to work at home or sit back and enjoy retirement. It might also be the time when you take a hard look into the future and develop a plan for the vacation home you worked so hard to buy years ago.
Part of estate planning is considering all your assets, not just bank and investment accounts, and, practically speaking, decide how you want them to go — including the vacation home.
In some families there is no question all of the children want the house to continue on through the generations. In others, some family members want to hold on to the house while others want to cash out. If you do not know or if you think you know which category applies to your children, this may be a good time for a family meeting. No matter the option, it might be built into the plan while there is still time to decide and not be a source of conflict in an emergency after you pass.
Here are some things to know.
IF YOU FAIL TO ADDRESS THE VACATION HOME IN YOUR ESTATE PLAN »
If, as most couples do, you leave your estate to your spouse and, on his or her passing, then in equal shares to your children, the effect under Pennsylvania law is that each child at the death of the surviving spouse inherits as tenants in common. This might or might not be your intent. If one or more of the children wants a buyout, the others might need to be in a position to pay or, in the alternative, if they do not have the funds, they may need to sell the property to satisfy the claim of those who want to cash out. If the issue is anticipated in advance, one possibility, among others, is that adjustments might be made to the estate plan to roughly equalize the inheritances of the beneficiaries taking into account inheritance of the home by some and not by all.
IF ONE ADULT CHILD WANTS THE VACATION HOME AND OTHERS
DO NOT » You can build a right of first refusal into your plan where one adult child wants to keep the home on your passing and the others do not. Your estate documents can provide a limited time when your son or daughter can buy the vacation home from the estate and a procedure to establish fair market value. Funds to pay could be raised from that person’s remaining inheritance, from financing or even from a mortgage on her or his personal residence. Advance knowledge can be very helpful in planning.
IF YOUR FAMILY WANTS TO KEEP THE VACATION HOME IN THE FAMILY INDEFINITELY »
Finally, if everyone agrees the vacation home should stay in the family, this does not end planning. You might place the house in a living trust during your lifetime or establish a trust under your will. Although a living trust does not insulate assets from Pennsylvania inheritance tax where applicable, it can provide detailed instructions how the property is to be handled, how maintenance, repairs, property taxes and similar expenses can be handled and even describe what weeks or months it might be available to family members, whether it can be rented when not used by family and other similar matters. Another alternative could be to establish a Limited Liability Company (LLC) now that would continue after your passing.
Under this arrangement again there can be similar descriptions regarding payment of expenses and so on. Parents might also consider gradually gifting an interest in the LLC and property to their children using the annual gift tax exclusion that is now $15,000 per person. Depending on the arrangement, parents could retain control while gradually transferring ownership to the next generation.
TAXES — A FINAL NOTE » Finally, Pennsylvania residents might also be interested in learning that, where a vacation property is owned by a Pennsylvania resident who dies and the property is located out of state, there is no Pennsylvania inheritance tax due on that property. (Whether there is estate tax due in the other state would need to be explored). The law is different for a vacation home located in Pennsylvania. So it can make a difference whether the property is located at the Jersey shore or in the Pocono Mountains.
Janet Colliton, Esq. is a Certified Elder Law Attorney. Her practice, Colliton Elder Law Associates, PC is limited to elder law, life care, special needs and estate planning and estate administration, and guardianship with offices at 790 East Market St., Suite 250, West Chester, PA 19382, 610-436-6674, colliton@collitonlaw. com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, cofounder of Life Transition Services, LLC, a service for families with long term care needs. Tune in to radio station WCHE 1520 at 4 p.m. on Wednesdays for “A Plan Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Ron Ehman, Next Home Signature.