The family vacation home Relax — but don’t relax the rules

by Adler Pollock & Sheehan P.C.
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A shared family vacation home can be a great place for rest, relaxation and family bonding. But don’t get too relaxed. A little planning — together with some clear rules about the usage of the home — can go a long way toward avoiding conflict and tension and keeping the home in the family.

Who owns it and how?

It may seem obvious, but it’s important for all family members to understand who actually owns the home. Family members sharing the home will more readily accept decisions about its usage or disposition knowing that they come from those holding legal title.

If the home has multiple owners — several siblings, for example — consider the form of ownership carefully. There may be advantages to holding title to the home in a family limited partnership (FLP) or family limited liability company (FLLC) and using FLP or FLLC interests to allocate ownership interests among family members. You can even design the partnership or operating agreement — or a separate buy-sell agreement — to help keep the home in the family. For example, if a family member wants to sell his or her interest, the agreement might give the remaining owners a right of first refusal.

What are the rules?

Typically, disputes between family members arise because of conflicting assumptions about how and when the home may be used, who’s responsible for cleaning and upkeep, and the ultimate disposition of the property. To avoid these disputes, it’s important to agree on a clear set of rules on:

  • Using the home (when, by whom),
  • Inviting guests,
  • Responsibilities for cleaning, maintenance and repairs,
  • Acceptable activities, behavior and noise levels, and
  • Dealing with emergencies or unexpected events.

Despite the informal nature of many vacation homes, it’s a good idea to implement some sort of reservation system to avoid conflicts.

If you plan to rent out the home as a source of income, it’s critical to establish rules for such rental activities. The tax implications of renting out a vacation home depend on several factors, including the number of rental days and the amount of personal use during the year.

Who’s responsible for the costs?

Generally, the costs of ownership — such as mortgage payments and major improvements — are borne by the owners according to their proportionate ownership interests. But the costs of usage — utilities, cleaning, maintenance and repairs — can be trickier to allocate fairly, especially when family members have different levels of usage and financial resources.

What about the future?

What happens if an owner dies, divorces or decides to sell his or her interest in the home? It depends on who owns the home and how the legal title is held. If the home is owned by a married couple or an individual, the disposition of the home upon death or divorce will be dictated by the relevant estate plan or divorce settlement.

If family members own the home as tenants-in-common, they’re generally free to sell their interests to whomever they choose, to bequeath their interests to their heirs or to force a sale of the entire property under certain circumstances. If they hold the property as joint tenants with rights of survivorship, an owner’s interest automatically passes to the surviving owners at death. If the home is held in an FLP or FLLC, family members have a great deal of flexibility to determine what happens to an owner’s interest in the event of death, divorce or sale.

Talk about it

There are many ways to own and share a family vacation home. To avoid conflicts and surprises, family members should discuss ownership and usage issues and establish rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Adler Pollock & Sheehan P.C. | Attorney Advertising

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