Practical Tips For Passing A Vacation Home To The Next Generation

Having a vacation home on the beach or in the mountains is the goal of many Carolina families, but keeping that property in the family for the next generation to enjoy can be a challenge without proper planning. Below are a few tips for families that want to pass a vacation home on to the next generation without too many headaches or heartaches.

Treat the Property Like A Business

If a property is being passed on to a group of people, it should basically be treated like a business. The family should meet with an attorney to draw up official documents governing its ownership, specifying who is responsible for paying taxes and doing basic maintenance, and spelling out the basics of who is allowed to use the property.

It may seem like overkill, but doing things like deciding now if smoking is going to be allowed at the property and setting rules for non-family guests can save a lot of hurt feelings down the road.

Decide Who Gets The Property When The Current Owners Pass Away

One of the wonderful things about families is that they are always growing. A new generation is always on the horizon as children become adults, get married, and have kids of their own. Unfortunately, this can present some challenges when it comes to joint property ownership. 1/32 ownership of a beach house isn’t worth much, but that one owner can cause a lot of problems for the rest of the family if they aren’t happy with the amount of time they get to use the property.

One popular solution is to put the property in trust, and have family members buy in or opt-out of the trust. Trusts can also protect the home if one of the owners declares bankruptcy or might try to sell their share of the home to a non-family member.

Plan Ahead For Taxes

Putting the property in a trust can also be smart from a tax perspective.

When a vacation home is sold, it is taxed as a capital gain. The portion that is taxable is calculated by subtracting the original price paid from the current sales price. This can been quite significant if the property has been in the family for a number of years.

People who inherit a property must also pay a tax on the changed value of the property if they sell it, unless the property ownership is passed via a trust. When a property is placed into a trust, it gets a new value for tax purposes. This is called a “step up in basis.” If a property that is in a trust is sold, it is still taxed, but it is only taxed on the difference between the sales price and the value of the property when it was put into the trust. This can save families thousands of dollars.

Don’t Hesitate To Reach Out

If you are thinking about purchasing a vacation home with several family members, or you currently own a home that you want the next generation to enjoy, don’t hesitate to ask an attorney for advice on the best way to make your visions of family fun come true.