Vacation homes are typically treasured by families and often pass down from generation to generation. But there may be more to transferring the family lake cottage or beach house than first meets the eye. If you plunge ahead without careful planning, it could disrupt harmony and lead to a “family feud.” In some cases, relationships may be severed forever.

Potential sources of conflict

Why would transferring a vacation home lead to conflict? The possible reasons are numerous and sundry and, of course, depend on whom you choose to name as your successors. For starters, the home may elicit strong emotions, with precious memories for different family members. Due to this connection, someone who’s excluded from ownership may harbor resentment. Or, if the ownership is divided equally — say, one-third to each of three siblings — one party might feel they have a greater right to the property than the others.

In addition, adult children are often married with children of their own, which can complicate matters, especially if any of the siblings and the respective spouses don’t get along. Existing sibling rivalries or other long-standing tensions may come into play.

Once ownership of the home is legally transferred to one or more of your kids, it can be subject to the claims of creditors. Or, if a married adult child gets divorced, his or her spouse might attempt to claim a portion of the home’s ownership.

The costs of operating a vacation home can’t be ignored, either. Not even counting property taxes and mortgage interest (when applicable), some family members may be stretched thin by outlays for repairs, maintenance and insurance. If siblings have disparate incomes, arguments about money can boil over.

Finally, assuming you divide ownership equally among your adult children, your decision may not be embraced by everyone concerned. While some may want to keep the home, and preserve the traditions associated with it, others might want to sell it and use the proceeds for other purposes. Thus, the family is divided.  

Communication is critical

Much of this potential discord can be avoided by talking things out before taking action. For example, you may learn that one child has no desire to continue using the home while another intends to keep it for him- or herself and his or her kids as long as possible.

Consider seeking a practical solution that benefits everyone without causing financial hardships. Get your family together face-to-face to hash out all the issues. Depending on the circumstances, spouses may — or may not — be invited. As a result of these talks, you might arrange a division of expenses or ownership that differs from the usual equal allocation.

In addition, you might want to discuss the possibility of renting the home to tenants, at least part of the time. This can be a lucrative source of income for your children while providing certain tax benefits. However, some family members may feel strongly about maintaining the home for personal use.

Other issues at stake

Before transferring ownership of your vacation home, consider all of the legal and tax ramifications. Although the most common method is to leave a home to children as tenants in common, this may not be the best approach if it causes discord. In that case, you may use a trust instead, thereby maximizing the available tax benefits under the prevailing laws. Contact your estate planning advisor for help addressing your vacation home in your estate plan.