If you own vacation property, it should be included in your estate plan. The failure to account for this significant asset can upset an estate plan and create complications for surviving family members. At SederLaw, we take a comprehensive approach to our estate planning strategies. Our objective is to help you have peace of mind in knowing what will happen to your property after you pass away.
Consideration 1: What might happen without a plan?
First, the absence of an estate plan could be detrimental both to your vacation property and to your family. Without an estate plan in place, there will be no clear direction as to who inherits any of your property. Ultimately, the property would pass to your heirs under the intestacy statute of the state where it is located. Your heirs might need to file a secondary probate in another state to obtain legal title to the property. Because state intestacy statutes vary, in some situations the division of your vacation home could vary from the disposition of other property owned in your home state. This can cause confusion and delays as well as hurt feelings and conflict between your surviving relatives. There could also be a lapse in time between your death and when an individual has legal authority to access the property, which could delay necessary maintenance or repairs.
Another essential part of an estate plan is a durable power of attorney. This instrument is used to designate an agent (also known as an attorney-in-fact) to act on your behalf if you become incapacitated due to accident, illness, or some other circumstance. In the event you are unable to make decisions for yourself and you do not have a power of attorney, other individuals will legally be unable to manage, sell, or otherwise dispense with your vacation property without obtaining a conservatorship. This process can take time and requires obtaining medical certificates from your doctors as well as a court hearing. This process may be more complicated if your vacation home is in a different state than your principal residence.
For these reasons and more, our firm always advises clients to consider a comprehensive estate plan that includes the above and other tools.
Consideration 2: Which estate planning instrument is best?
A will is one of several ways you may wish to pass on your vacation property. Another option is to convey your vacation home while retaining a life estate interest in it. This enables you to enjoy the rights of your property during your lifetime (such as living there). After your death, the property passes to the individual you designated as beneficiary. There are potential advantages to this option such as avoiding probate and reducing the value of assets that are counted against you for purposes of Medicaid eligibility.
You may instead wish to create a living trust that will own the vacation home. This step involves some paperwork, such as creating a trust and naming a successor trustee to take charge of the trust after your death. You will also need to legally transfer the vacation home to the trust, at which point the property will be held in the trust and managed according to its terms. Probate avoidance is a major advantage of using this approach.
There are other options for how you wish to ultimately transfer your vacation property to your heirs, and we can discuss all of them with you.
Consideration 3: Who will inherit the vacation home?
You will need to give some thought to who should inherit your vacation property upon your death. Many individuals choose their children to inherit their real property assets. If you choose your children to inherit, and they are currently minors, arrangements will need to be made to take care of the property if you pass away before your children become adults.
Our attorneys can help you consider your options and structure legal arrangements to effectuate your decisions.Â