Keeping the Vacation Home in the Family: Intentional Estate Planning Required!

For many families we work with, we encounter a situation involving some kind of vacation home whether it’s the “family cottage”, the “home away from home”, or the “vacation home” - often this property isn’t just thought of as a piece of real estate … It encompasses memories, feelings and family history that are unique to that special place!

It may be the place where family gatherings brought lessons in family history or the place where building a cabin brought lessons in patience and new skills or the place where enjoying the outdoors meant hiking, fishing and campfires.  It may be the place where family spent summers, where family time was the best time, where cousins bonded, where grandparents told the same stories every summer, and where everyone felt like they were home. Whether your vacation home sits near one of the Finger Lakes, is tucked away in the woods, or just outside of Buffalo, these vacation homes carry sentimental weight that is different from your primary residence.

And yet - without the right estate planning, a beloved vacation home is often the first asset to spark conflict, confusion, or even litigation. People may not be as concerned about other assets in the same sense as the vacation home. As well, as property values rise, including in places throughout Western New York, the financial stakes get higher, too. The goal isn’t just to “leave the vacation home to the kids” - it’s to create a plan that actually works for your family dynamic and avoid a costly probate.

Let’s discuss what it takes to pass down a vacation home in the best way possible, why it’s more complicated than many expect, and how thoughtful estate planning can protect both the property and your family harmony.

Why Vacation Homes Are Tricky Assets in Estate Planning

Real estate can be really tricky when it comes to estate planning - and, especially so with a vacation home.  That because a vacation home is rarely just a simple asset - it’s a bundle of financial responsibilities, emotional attachments, and logistical decisions. That’s what makes intentional (and well thought out) estate planning so important.

A vacation home has several potential friction points that can lead to complicated family conversations, both during the owner’s life and at the time of the owner’s passing.  The owner is the person who has title to the real property according to the deed recorded in the pertinent County Clerk’s Office.  The owner could be one or more than one individuals who then own the property in a manner pursuant to the deed language (for example, as tenants-in-common or joint tenants or tenants by the entirety, etc.). 

During an owner’s life, a few friction points are:

• The singular owner experiences cognitive decline
• An owner who holds title with another individual experiences cognitive decline
• An owner has judgments/liens or other issues that can affect the real property
• An owner become the victim of financial exploitation or other forms of undue influence
• An owner needs nursing home care
• The property becomes encumbered by judgments/liens
• An owner goes through a divorce 
• An owner is unable to maintain the property

At the time of an owner’s passing, a few friction points are:

• Lack of intentional estate planning
• Difficulty moving forward with probate
• Lack of legal authority for handling the owner’s interest in the real property
• Lack of funds for ongoing expenses - for example, property taxes, upkeep, insurance, repairs (and even if during an interim period while a probate proceeding is getting underway)
• Lack of understanding management of the property
• Multiple heirs (or beneficiaries) with different financial situations
• Sentimental attachment that doesn’t always match practical reality - for example, the daughter who simply can’t afford the vacation home but wants it more than any of her siblings
• Risk of disagreements over selling vs. keeping the property - for example, one sibling wants the vacation home, the other could use the $$$, and one wants to live at the property as their primary home which others disagree with
• Co-ownership issues, especially when siblings have different lifestyles or incomes that cause disagreements on the use of the property and the various financial matters involving the property
• Co-owner’s own estate planning or lack thereof - What may happen if real estate is co-owned and one owner becomes incapacitated or passes? How will a co-owner’s own estate planning (or lack thereof) affect other co-owners? for example, a co-owner’s creditors affect other co-owners

These are several very real potential reasons why many families unintentionally set loved ones up for conflict.  It’s crucial to understand that issues can occur during an owner’s life, as well at the time of an owner’s passing.  When these issues come up, the lack of thoughtful intentional estate planning becomes glaringly disappointing.  Without being clear on goals, addressing potential risks and supporting your family with the right legal structure in your estate planning documents, things can go wrong quickly.  So, where do we go from here? Let’s break down some of the options you have!

Option 1: Leaving the Vacation Home in Your Will

This is the simplest option on paper, and what many people choose to do, but we believe it’s because they just don’t know better yet! Leaving a vacation home in your will can actually create the most confusion in practice. A will can specify who inherits the vacation home, but it must go through probate. During probate, disputes, delays, and costs can arise - and even without prolonged disputes, the process of probate can be longer than expected or desired.  In Erie County Surrogate’s Court, for example, probate administration should take a good year, if not longer. 

While we would like to assure you, having a will as a “safety net” (for any number of reasons) is still absolutely essential, for something like a vacation home we strongly urge you to consider a few alternatives that will reduce the chance of a dispute and avoid lengthy probate administration.  As well, leaving the will as the only estate planning vehicle does NOTHING to address concerns during your life.  Whether it’s planning for an owner’s potential incapacity or protecting the asset from potential future creditors or other concerns - a will is not going to help. 

Option 2: Creating a Trust (Revocable or Irrevocable)

While putting the vacation home in your will is AN option, there are others that you may want to consider. One of them is putting the vacation home into a trust. This is one of the strongest ways to avoid probate and provide greater control and clarity.  In terms of lifetime trusts, you need to consider either a revocable or an irrevocable living trust. 

Revocable Living Trust

With a revocable living trust, you remain in full control during your life.  At your passing, the Successor Trustee will follow the Trust Agreement which will provide what should happen with the vacation home - it may remain in trust or be distributed to the trust beneficiaries (depending on the desired planning).  This allows privacy and continuity, and avoids probate for this asset altogether (and the costs and potential conflicts that go along with it).  You can provide for

various contingencies within the Trust Agreement.  The Trust Agreement is like a road-map for what you want, both during your life and at your passing.  With this in mind, you can have any number of flexible ways to handle the vacation home - from who should manage it and how they should manage it in the event you cannot, to what is permitted during your life, to what should happen at your passing and to what should happen in the event of various potential contingencies.  Remember, the future can have some unexpected twists and turns!  This type of road-map is best laid out in a Trust Agreement which has instructions and requirements for the Trustee and Successor Trustees to follow.  Some of those instructions equate to beneficial flexibility for the Trustee into the future.  Flexibility is certainly an important consideration.

Irrevocable Trust

Irrevocable trusts can be more protective, especially in guarding against potential undue influence, elder abuse or improper actions by others into the future, as well as with respect to long-term asset preservation (including Medicaid planning or shielding the vacation home from potential future creditors). An irrevocable trust has more limited options in so far as providing flexibility into the future (which can be seen as both positive and negative depending on the goals and the various factors involved). For families wanting to ensure the vacation home stays protected for the long haul, an irrevocable trust may be a helpful tool in your estate planning

toolbox.

Option 3: Creating a Vacation Home Agreement / LLC

Writing an agreement specific to the vacation home is an additional option that can be worth considering depending on your family’s situation. This is not a substitute for a trust or will, but rather an additional written plan that outlines:

• How expenses will be shared
• Who can use the property and when
• How decisions will be made (repairs, rentals, improvements)
• What happens if one person wants out
• How disputes will be resolved

A vacation home agreement can dramatically reduce tension later, especially when adult siblings or extended family members are involved. It puts expectations on paper before misunderstandings have the chance to grow. An important consideration with a vacation home agreement is that it does NOT  transfer ownership and therefore does not avoid probate for the family. It can, however, be an important and useful tool that is part of other planning in order to minimize conflicts down the road. 

This kind of agreement can be formalized as part of an operating agreement in a Limited Liability Company (LLC).  An LLC can be created and the vacation home can be transferred to the LLC.  The LLC’s Operating Agreement (or a separate agreement) will control what is required of members and what they can and cannot do with their respective member interests.  The LLC can be managed by a manager or a member (or members) of the LLC.  Or, potentially, if the vacation home was transferred to a lifetime trust, the Trust Agreement could require the Trustee set up an LLC at some point in the future.

Option 4: Passing the Property to One Heir (With Equalization)

If only one child truly wants the vacation home, or has the means to maintain it, you can structure your estate so that person inherits the vacation home while others receive different assets of equal value.

This avoids forced co-ownership and keeps relationships intact -  a priority for many families that we serve in Western New York.

Of course, this begs the question as to what other assets may exist at your passing, what debts and expenses there may be at that time, how any such equalization shall be provided for in your pertinent estate planning documents, how the vacation home and other assets are appraised and so on.

Option 5: Transferring Ownership During Life

Gifting the vacation home during your life can:

• Keep the asset out of your probate estate
• Allow you to guide the transition
• Potentially prevent disputes after your passing

But this method must be handled very carefully. There are tax consequences to consider - for example, if there is a completed gift, the transferee (the one receiving the property) takes the “carryover basis” of the transferor (the one giving away the property) which can be disastrous at a time of sale with capital gains consequences.  As well, there are implications with Medicaid, gift tax filings and what estate planning or lack thereof the transferee has in place.  The vacation home could even be lost due to creditor issues or eventually end up in the hands of unintended

individuals - this can, obviously, wreak havoc on this kind of “planning”. If this is an option you are considering, professional guidance truly matters - Make sure you discuss this very thoroughly with your estate planning attorney and CPA prior to taking action!

The Emotional Side No One Talks About

Families often say, “everything will work out.” But after working with family after family after family, we know that grief, money, nostalgia, and stress make perfectly reasonable people do less than reasonable things when it comes to inheritance. While families always have the best intentions, emotions running high can destroy relationships, as much as we hate to say it.

Here are some of the top situations that we see that often complicate matters:

• One heir wants to sell; another refuses.
• One sibling can afford repairs; another can’t.
• Spouses get involved … Enough said.
• One heir becomes incapacitated.
• One heir has a judgment against him/her.
• One heir dies exposing everyone else to his/her estate matters (and problems).
• One heir “moves in” as his/her principal home and doesn’t want to leave.
• Someone feels “more attached” or spent more time at the vacation home than other siblings or individuals and therefore assumes they deserve more decision-making authority.
• A big repair bill arrives, and no one can agree on how to split it.

If any of these scenarios are setting off alarms in your mind as potential problems within your

own family, we’d urge you to consult with an estate planning attorney to devise a clear plan that keeps peace for your family!

A Practical Checklist: Protecting Your Vacation Home Through Estate Planning

Here’s a helpful starting checklist to make sure your plan is solid, intentional, and family-focused:

1. Identify Your Long-Term Goal

• Keep the vacation home in the family
• Pass it to one heir
• Sell it and divide proceeds
• Preserve it for future generations through a trust / LLC or a combination of both

2. Determine Who Will *Realistically* Maintain the Property

Consider financial ability, location, and willingness.

3. Decide Whether You Want to Avoid Probate

Trusts can help - especially with vacation homes that risk disputes.

4. Gather Key Information

• Deed
• Mortgage details
• Insurance
• Estimated annual expenses
• Any rental history

5. Choose the Right Legal Tool(s)

• Revocable trust
• Irrevocable trust
• Will
• Lifetime transfer
• LLC 

6. Create a Cottage Agreement

Outline expectations, schedules, responsibilities, and financial contributions.  And, remember, this should be part of other planning and be incorporated into it. 

7. Review Tax and Other Implications Carefully

Work with an estate planning attorney and accountant to consider implications such as estate

tax, gift tax filings, capital gains implications, beneficiary concerns, potential creditor concerns and so on.

8. Update Your Estate Plan Regularly

Especially after major life events (new marriage, divorce, purchase of another property, etc.).

Your Vacation Home Is Part of Your Legacy - Let’s Protect It

If your goal is to keep your vacation home in the family, a thoughtful estate plan is the only reliable way to make that happen. It's not just about avoiding probate - it’s about setting your loved ones up for harmony, clarity, and success through carrying on your wishes, during life and after your passing.

If you’re ready to start putting together your own estate plan, we are always here to help you

understand the tools available and choose the best path for your family and your legacy. Visit our Estate Planning or Trusts & Willspage to learn more about your estate planning options, or reach out to schedule a consultation. We’re here to help protect the places and memories that matter most!