For families fortunate to own a summer cottage or cabin, their property is not only considered to be a favorite spot to relax, but also a valuable family asset because of the memories and experiences shared at that special place. However, these vacation homes can also be a source of conflict if realistic plans for the future of the property are not discussed and executed. (Just looking for tips on summer maintenance? Check here.)
Here are some tips for generational transfers of vacation properties:
Talk about it. Dealing with a legacy property means dealing with death. Many parents find it difficult to initiate the subject with their adult children, but family discussion about a place’s importance and vision for the future is essential. At a recent program sponsored by the Preservation Alliance, Squam Lakes Conservation Society and Lakes Region Conservation Trust, presenter Nat Coolidge suggested a “what does this place mean to you” exercise followed by honest and non-judgmental conversations about family members’ future roles before delving into financial implications.
Get advice from an attorney or CPA. Once you have the basics in place, work with someone who has experience with these properties and varied ownership arrangements.
Make a property succession plan. Convert the vision to a working document, and incorporate guiding principles about stewardship, use, and leadership. Specifics can include: decision making about common homeowner issues such as repairs and maintenance; division of maintenance costs, property taxes and other expenses; scheduling of usage of the property; and ownership rights if one of the owners dies. If heirs don’t agree about keeping the property, an established buyout plan aids in a smooth transition. (This may include a provision to minimize the financial burden for family members who wish to buy out a sibling. In this case, the buyout price would typically be set at less than market value with favorable terms.)
Consider easements and endowment. Conservation and preservation easements can be a tool to ensure the family vision is realized, especially if it is sold outside of the family. Easements can also offer certain federal tax benefits and lower property taxes. Establishing an endowment, if possible, for the maintenance of the property can also ensure continued stewardship and help family members, with limited operations funds to contribute, stay involved.
Want to share your tips? Send ideas to firstname.lastname@example.org.
The Preservation Alliance thanks Charter Trust Company for their support of our Passing It On program.