A family limited partnership or limited liability company can be established to hold the property. Such entity can help facilitate an annual exclusion gifting program and will allow for the transferability of ownership without the need to prepare and record a deed. The partnership or operating agreement can also address potentially troublesome situations. While every family differs, listed below are some factors that need to be considered in the agreement.
- How will the family share use of the property? A common dispute with a shared use property is who gets it during peak seasons. Choices can include a fixed schedule, a rotating allocation of dates, preferential booking for those responsible for the management of the property or a point system similar to a time share.
- Who will pay the expenses? Common expenses include taxes, insurance and maintenance costs. Often, these expenses are not considered in an estate plan, leaving the children to pay them. Contributions can be made pro-ratably based on ownership, use, or “annual dues” or “rent” can be paid for the use of the home. However, if there are disparate income levels between the children, the payment of these expenses can often cause stress and other problems for the lower income children. It may be advisable for mom and dad to establish a fund to defray these costs for future generations.
- Who will oversee management? One family member must be responsible for oversight of the property, including maintenance and repairs, payment of bills, collection of moneys and lease of the property. An agreement should designate one family member to act as the property manager and establish a process for the replacement of such person. The agreement may establish a rotation of this responsibility between family members.
- How will problems be resolved? No matter how good of a plan is put in place, disagreements happen. Common disagreements concern the non-payment of expenses and the failure to properly maintain the property. If the agreement addresses how these issues are resolved, it can absolve the property manager or other family members from being put in uncomfortable situations.
- What is the exit strategy? A vacation property owned by the first generation may be desired. However, the operation of the property by a second generation may become untenable. Further, a family member may, no longer want to own the property. An agreement must address exit strategies which often vary by family and need to be carefully reviewed.
When the intention is to pass ownership of a vacation home to the next generation, a comprehensive plan is essential if the home is to continue to foster happy memories rather than be a source of tensions. To develop a succession plan for your vacation home, please contact Michael George or your Stark & Knoll attorney at 330-376-3300 or info@stark-knoll.com.