Keeping it in the Family
The most critical factor in maintaining a vacation home is intra-family dynamics.
A plan to keep a treasured vacation home within the family is achievable. However, doing so requires open communication, and perhaps confronting unspoken issues, to achieve agreement. Your family should consider not only the issues of today, but those of tomorrow; and how future generations might be equipped to do the same. Consider how financial and managerial decisions will be made, and identify priority issues. These determinations will provide insight to guide ownership structure decisions and the governance that will support them.
The most critical factor in maintaining a vacation home is intra-family dynamics. The financial, managerial, and usage components of successfully preserving the home are undoubtedly important. However, without transparent communication and a cooperative effort among family members, any conceived plan will likely fail. Consensus should be the goal, but disagreements are natural—the crucial element is open and honest dialogue aimed toward a collective end. Often, a family meeting (whether in-person or by phone) and a “mission statement” can help set a baseline for further discussions. There may be “house rules” or other informal mechanisms by which family decisions have been made. At the outset, it is important that family members discuss their understanding of such procedures, and determine which work and which do not. Successful family plans honor the implicit authority of the agreement, establish a system to delegate authority and responsibility early, and seek to develop a culture of respect and inclusivity.
Ownership of the home is a similarly important consideration. Often times a vacation home is originally owned by parents or grandparents. While this makes sense initially, when the next generation is to inherit the home, a new ownership structure is likely necessary. Perhaps a trust, to support the financial demands of the home while permitting the property to be enjoyed by the family members. There are, however, many important considerations: How will the trust be funded? How sufficient will the trust be? And will the trust be able to adapt to the changing needs of future generations?
Partnership is one alternative. A partnership is simple to establish and the “one share, one vote” structure appears equitable. This superficial fairness, however, can be misleading. The “one share, one vote” model may be unable to adapt to evolving family dynamics. Additionally, partnerships may present tax inefficiencies or subject members to unwanted liability. Associations have been successful and may provide options unavailable through partnerships, but governance is not inherently structured, requiring negotiation. Incorporating, in various forms, may provide benefits afforded by an association but with explicit governance requirements. Incorporating can be complex and expensive, however. Additionally, there are tax implications of incorporating that must be considered. These are but a few of the many other creative means available.
A family vacation home is an extraordinary place. It represents irreplaceable memories and time with loved ones, as well as inherited traditions and principles. Emotional ties create a bond with the home for children and grandchildren who hope this will continue for generations. Unfortunately, hope alone is insufficient—many vacation homes do not make it beyond a second or third generation. Thus the need for serious and careful thought in order to preserve and pass on your family property. Consultation with family, advisors, and an attorney is highly recommended, as is legal formalization of the resulting decisions. For more information about strategies for preserving your family vacation home, or to discuss options for you and your family, reach out to one of our trusted professionals.
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