This time of year, families gather from all around the country to visit with parents and siblings at the family vacation home. At some point, woven between reminiscing of summers past, the conversation leads to wondering about keeping this home for the next generation. Many parents also come to planning sessions with one of their goals being the same – keeping the home for future generations.
To accomplish that, a little planning needs to happen. The first order of business would be to retitle the home into an entity like a trust where the grantor of the trust can decide the terms and conditions of the trust. Essentially, that trust document can lay out all of the moving parts to prevent a family feud from developing over the future use or disposition of the property.
The next order of business is to address all of the moving parts within the trust document. I’d start with money and usage. As for money, the parents should have a good idea regarding what it costs to maintain that household each year. In this case, it is better to err on the high side than to underestimate.
Then factor in the larger maintenance items and wish list. Larger items may include appliances, roofs, painting and other maintenance that all homeowners need to be consistently carrying out to prevent larger future problems. The wish list is something that needs to be planned for. Items like this may include a new or larger kitchen, garage or other upgrades that would add to value and utility.
Once this is quantified, decide how much money will be needed in an account to pay for these items forever. This is often the first stumbling block for some families. If you decide, for example, that it costs $25,000 per year for maintenance and repairs, you decide how large the endowment needs to be. With today’s low interest rates, that endowment number is probably larger than you think. If you can’t afford to do that now, then make sure that it is done as a result of settling the grantors’ estate. Absent solving the financial piece, you are begging for trouble somewhere down the road.
Also be specific about how a future beneficiary may or may not liquidate their beneficial interest. It may not be wise to force someone to be a beneficiary if they don’t want to, but it may also be impractical or impossible for the remaining beneficiaries to buy them out.
Make sure that your trust addresses how the time spent in the home will be divided. Discuss whether a beneficiary may rent their time, a maximum number of guests and how frequently you’ll actually meet to divvy up the calendar. I’ve seen weekends of high hopes turned into horror shows when the battles over usage ensue.
John P. Napolitano CFP, CPA is CEO of U. S. Wealth Management in Braintree, Mass. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.