More than Memories: Estate Planning for Vacation Homes - Part 2 – Estate Planning Strategies

Whether you are looking to own a vacation home for a couple of years or to keep it in the family for generations, the planning you do now can help you avoid challenges down the road. In this four-part series, we’ll discuss ownership structures, long-term estate planning, tax benefits, and tips to avoid disputes.

Part 2 – Estate Planning Strategies

A vacation home holds sentimental value—it’s where families gather, traditions are formed, and memories are made. However, passing it down through generations can present challenges. Without proper estate planning, heirs may face legal disputes, financial burdens, or conflicting opinions on how to manage the property. Thoughtful succession planning ensures your family retreat remains a source of joy rather than contention.

Developing a Strong Succession Plan

To avoid forced sales or legal disputes, families should establish a succession plan that determines who inherits the property, how decisions will be made, and how costs will be managed. Several strategies, which can be incorporated as part of your estate plan, can help to accomplish this:

1. Using a Trust or LLC for Ownership

As detailed in Part 1 of this series, placing the home into a trust or limited liability company (LLC) can provide structure and protection.

• Trust Ownership: A revocable trust allows homeowners to set specific inheritance rules and avoid probate, while an irrevocable trust can offer added asset protection.
• LLC Ownership: An LLC establishes clear management guidelines, helps divide financial responsibilities, and allows heirs to sell their shares without forcing a full sale.

Example: A family establishes an LLC for their vacation home. Each child holds an ownership percentage, and responsibilities—such as maintenance and scheduling—are formally documented. A majority vote system ensures decisions (like selling the property or making renovations) are fair and structured.

2. Creating a Buyout Option

Some heirs may wish to sell their interest rather than retain ownership. A well-structured buyout clause allows remaining heirs to purchase their shares without forcing a public sale.

Example: A father leaves his mountain cabin to three children. Two want to keep it, while one prefers to sell. Instead of selling the property outright, the trust includes a buyout provision, allowing the two interested heirs to purchase the third sibling’s share at market value.

3. Establishing a Maintenance Fund

A vacation home requires ongoing expenses. Setting up a maintenance fund ensures the property remains in good condition without relying on uncertain financial contributions from heirs.

Example: A couple creates a fund within their trust that covers property taxes, repairs, and insurance for the next 20 years. This eliminates financial disputes and ensures the home remains properly cared for.

4. Drafting a Family Usage Agreement

A formal agreement specifying who can use the home, when, and under what conditions prevents future conflicts.

Key Considerations:

• Scheduling rules (rotating weeks, priority for holidays, etc.)
• Guest policies (who can invite friends, rental rules)
• Financial contributions (who pays for upkeep and repairs)

Example: A grandmother leaves her coastal property to six grandchildren. To prevent arguments, she sets up a usage agreement within the trust that rotates summer access equally among them. She also designates a trustee to mediate disputes.

Consider Unique Individual and Family Situations

Unlike a primary residence, vacation homes are often shared among multiple family members. This raises important questions about ownership, financial responsibilities, and future usage.

1. Differing Financial Abilities or Tolerance for Contribution

Not all heirs may have the financial capacity or willingness to maintain a vacation home. Property taxes, insurance, repairs, and upkeep can add up. Some heirs may live far away and use the home infrequently, while others may visit regularly and feel more invested.

Example: A father passes down his ski cabin to his three adult children. One child lives nearby and frequently visits, while the others live out of state and use the cabin only once a year. Without a formal plan, disagreements arise over maintenance costs and financial contributions. The child who visits regularly feels burdened with the upkeep, while the others struggle to justify ongoing expenses. A structured ownership agreement or trust could have helped to resolve these concerns beforehand.

2. Conflicts Over Usage Rights

Who gets to use the home and when? Disagreements often arise regarding scheduling, guest policies, and whether the home can be rented out for extra income. Families need to define rules to avoid misunderstandings.

Example: A mother leaves her beachfront home to her three children, all of whom have families of their own. Initially, they agree to share usage equally. However, scheduling conflicts become frequent, and resentment builds as one sibling books popular summer weeks every year. A formal usage agreement, such as a rotating schedule, could ensure fair access to the property.

3. Equal vs. Unequal Ownership Shares

Some families believe in dividing ownership equally, while others recognize that certain heirs may have a greater emotional or financial investment in the property. Unequal shares can work if clearly documented and agreed upon by all parties.

Example: A couple with four children owns a lake house. Two children use the home frequently and participate in its upkeep, while the others show little interest. Instead of leaving equal shares to all four, the parents allocate larger shares to those who actively maintain the property, with a buyout clause for the others. This ensures fairness while protecting the home’s longevity.

Final Thoughts

Vacation homes represent family traditions and cherished memories, but they also require careful estate planning to avoid disputes and financial burdens. Whether through trusts, LLCs, buyout provisions, or structured agreements, families can ensure their vacation retreat remains an asset rather than a liability.

If you own a vacation home, consider consulting with an estate planning attorney to develop a customized strategy that reflects your family’s needs. The right plan will keep your home—and your family—intact for generations to come.

In the next issue, we will discuss tax planning strategies for owing a vacation home. Read Part 1 here: Property Ownership Structure