
Family members may have fond memories of the vacation home you spent time in during the summer while growing up. But is that home protected for those children and grandchildren in an estate plan, or can it be lost when you pass away.
There may be a challenging financial problem to preserving that second home in the face of federal, state and local taxes. There may be additional obstacles as well to keeping that second home in the family. You have to consider where different family members live. Are they on the other side of the country? If you have multiple children, who will own the home once you are no longer here? Which family members want to or don’t want to own the home? Who wants the financial responsibility?
These are all legitimate questions, and they need to be discussed as an entire family before any decisions are made. It’s critical that there be proper planning for such a large portion of your estate.
Here are some options you can consider:
- Outright transfer: A complete one-time gift of the property to children and/or grandchildren may be the simplest way but it could result in a large taxable gift.
- Family Limited Liability Company: An LLC made up of family members offers some structure and rules for who may be a member, the operation and use of the property, and it provides protection against creditors. It can be managed by a family member or a person outside the family designated for that role. However, there are state filing fees and income tax returns to consider.
- Gift to Qualified Personal Residence Trust (QPRT): By using a QPRT, the donor transfers a home into the new trust that exists for a defined period of time. The donor continues to pay the costs of the home, including real estate taxes. When the period of time ends title to the home passes to the remainder beneficiary or beneficiaries. There are complications with this method, including what happens if the donor is still alive at the end of the defined period of time, and what mortgage complications are involved?
- Gift to Grantor Trust: A home can be gifted to an irrevocable trust, and the trust structure should provide rules regarding the shared use and expenses of the home among the beneficiaries. One complication here is that it uses up part of the lifetime gift exemption. Also, it can be complicated if there is a mortgage involved.
With all these complicated solutions, it is safe to say that dealing with a second family home is not easy. It needs to be considered in any estate plan, and it is best to include a qualified estate-planning attorney in that discussion.