The Family Cottage: How to handle your vacation property at death

Vacations are often an integral part of a family’s collective identity and experience.  As a result, our clients frequently ask for more specialized treatment of the family vacation home in their estate plan.  They envision their children, grandchildren, and even great-grandchildren returning year after to year to the same property for decades to come. 

That kind of continuity can be powerful and comforting, but as times goes on and the family expands, the management of this type of asset often becomes a challenge without specific planning techniques to resolve potential problems.  The major obstacles in the family’s ownership of a vacation home after your death are apportioning costs associated with the property and creating a system to determine who will have the right to access the property at any given time.

Clients often theorize that the costs of maintaining the family cottage will be split evenly among the oldest generation, which sounds simple and straightforward.  In reality, our lives are rarely this predictable, and there may come a time when one or more siblings will be unable or unwilling to contribute their share of the costs.  This can be the result of unexpected illness or unemployment leading to financial stress, but it may also be the case that one of the siblings is no longer interested in using the family cottage and prefers not to continue contributing to the costs.

Similarly, co-owners of vacation property may have trouble coming to a consensus about when each of them should have access to it.  Wherever the family cottage is located, there is likely to be a ‘peak season’ when access is the most desirable.  Families may also have limited availability, because school breaks for children often overlap and adults might have inflexible options for taking time away from work.

There are planning options that may overcome these hurdles, but we encourage you to first talk to your adult children and gauge their level of interest in the family cottage.  If only one child is interested (or has the means to maintain it), you can simplify your estate planning approach by leaving the property to the interested child and making up for the value using other assets that pass to the children who are not interested.  If none of your children want to take on the property, it is unwise to employ planning techniques that attempt to force it upon them.  Even “locked” in a trust, the children could petition a court to allow the property to be sold, and if forced to retain a property none of them want, they are likely to allow it to fall into disrepair, thus losing value.

If your children agree that the family cottage should remain accessible by all of them, there are several approaches that can minimize conflict.  Leaving real property outright to multiple people may not be the best strategy, because when co-owners of real estate cannot agree about costs or access, their only recourse is to file a “partition suit” with the court, requesting that the court force the sale of the property and division of the proceeds.  Disagreements of this kind, without a plan in place to address them, can lead to family estrangement – the exact opposite of what retaining the family cottage is meant to accomplish.  Another problem with this approach is that any creditors of one of the children (including ex-spouses) could attach his or her interest in the property to satisfy the child’s debt.

One better possibility is to form a limited liability company (or “LLC”) to own the property and leave your children membership interests in the LLC instead of ownership interests in the real property.  The terms of the LLC’s operating agreement could allow your children to buy each other out if one of them is unable or unwilling to continue contributing to the costs.  This type of entity also provides some creditor protection, as well as liability protection if the family intends to rent the property out during periods when it would otherwise be vacant in order to offset maintenance costs. 

Another option is to hold the family cottage in a trust that has specific terms spelling out the rights and obligations of the beneficiaries and setting conditions or a certain time when the trust terminates.  If there are concerns about cost-sharing, one possibility is to fund the trust with liquid assets (such as marketable securities) as well as the real property and directing the trustee to pay the maintenance expenses from the liquid assets.  If the trust is drafted properly, creditors of the beneficiaries of the trust would be unable to access the assets.

If you are an owner of a beloved family vacation home and have wrestled with how to transition ownership to your children at your death, give us a call.  We can talk you through the options and come to the best solution for your family’s circumstances. 

Travels Tips From Estate Planning Lawyers

With the school year coming to a close, many of us (including the parents at Schooley Law Firm) are planning to take family vacations over the next several months.  We thought it would be a good time to gather our thoughts about important planning (legal and otherwise) to get ready for your summer vacation.

What to take with you:

• It’s a good idea to take a copy of your advance medical directive or health care power of attorney on your trip.  Although local laws vary with regard to these documents, having a copy with you will help doctors or paramedics reach your health care agents in an emergency.  Many cell phones also have an option to add emergency contacts and other information, such as allergies and blood type, which can be accessed by EMTs even if the phone is locked.  (On our iPhones, it’s under the “Health” app.)  Some people also like to carry a list of important contacts in their wallet, which is a great option – just be careful how much personal information is listed in case your wallet is lost or stolen.
• Traveling outside the United States? Email yourself photographs of your family’s passports.  If bags containing your identification are lost or stolen, taking this step will help you quickly establish your identity at the embassy.
• If you are divorced and have minor children from your previous marriage, it’s a good idea to bring a copy of your ex-spouse’s written consent for you to take your children out of the state or country if your court order requires this.  If you have questions about what the letter should say or whether your divorce terms restrict international travel, give us a call.

What to leave behind:

• Make sure someone who is staying behind knows where your estate planning documents are located and how to access them.  This is a good idea whether you are out of town or not. If an emergency happens while you are away, however, your agent under your power of attorney may need access to the instrument in order to resolve the problem.  Likewise, if you pass away unexpectedly while on vacation, your executor and/or successor trustee under your revocable trust will need access to your documents in order to make plans and arrangements.
• Likewise, don’t forget to leave someone with a copy of your itinerary, and make sure that itinerary contains sufficient detail. Someone needs to know when you are leaving and returning (with flight details, if applicable), where you will be staying, and how to reach you while you are gone.  Don’t assume you will be reachable on your cell phone – in remote locations (e.g. Yellowstone), cell service is notoriously spotty, and in other countries your phone may not work at all (or will cost you a small fortune to use).  If you plan on staying in touch, check with your cell phone provider before you leave to find out the terms of international use.  Alternatively, if you have an “unlocked” phone, buy a new sim card at a major airport abroad for minutes and texting in that region – then text your family your international number.  “WhatsApp” is another great app to use to stay in touch when you have internet or cell service.

A few more things to think about:

• Consider reviewing your estate plan before traveling to make sure it still makes sense.  We have answered more than one panicked phone call from would-be travelers who have realized changes need to be made at the last minute (commonly, changing the guardian of minor children).  If you do find yourself in this situation, feel free to give us a call and we will work with you to get things turned around as quickly as possible.
• Don’t forget to both notify and check with your credit card company and/or bank to find out whether restrictions apply to using your credit or debit cards while traveling.  It really sours a vacation when your card is declined at the swim-up pool bar.
• If you’re in the middle of estate planning, premarital planning, or a divorce and are embarking on a long trip, drop your attorneys a line.  For one thing, we love hearing our clients’ tales of exploration!  But we also get worried if we don’t hear back from you for awhile.

From all of us at Schooley Law Firm: have a wonderful summer and enjoy your travels!  If you have questions about travel planning or updating your documents, call us now to get it out of the way instead of waiting until you get back from vacation. It’s one less worry to come between you and your relaxation time!

The above pics were from Jennifer Schooley's trip to Greece with her two children, Jack and Coco, and Katie Dickinson's honeymoon in the Caribbean. 

A Reflection on Legacy and The Rockefellers

I often challenge my clients to ask themselves what “legacy” means to them and how that translates to their vision for their family.  This past weekend in New York, I paid homage to one of the grandest collecting legacies, that of late David and Peggy Rockefeller, on auction at Christie’s.  The auction, hyped for being the largest collection of fine art, decorative arts, china, and furnishings ever to be sold, began last night.  A Picasso, famed for being from the artist’s “Rose Period” and being purchased originally by Gertrude Stein, sold for a stunning $115M.  A Matisse (below) sold for $80.75M, and one of Monet’s water lilies paintings (below) sold for $84M.  

My personal favorite object – one that’s more pedestrian in nature, but still on a grand scale – is a massive picnic trunk, originally given to the Rockefellers by the king of Morocco. 

Far more stunning than the sale prices, is the Rockefeller giving legacy.  When Bill and Melinda Gates and Warren Buffett wanted to challenge other billionaires to increase their giving, they wrote to David Rockefeller, asking that he host the dinner that 14 individuals with a collective net worth of more than $130 billion attend.  The result, is The Giving Pledge which now has 175 billionaire subscribers pledging to give more than half of their assets during life or at death to charity.  David Rockefeller, having long been known for his philanthropy, already believed in and gave at such levels.  Thus, it should come as no surprise that all sale proceeds of the Christie’s auction, expected to bring more than $500M, as well as sales of real estate, are going to be donated to twelve charities.  Two of these charities benefit my beloved Maine.

And this is where my small story and that of the Rockefellers intersect.  If you were to ask my children what family legacy I have created for them, they would say, in their own words, that it is “a legacy of time and place.”  Many of our fondest memories rest in time we have spent together on Mount Desert Island in Maine, where the Rockefellers of past generations and other families donated their land to the public. 

Misty mornings spent searching for starfish in tidal pools, afternoons spent plunging into cold ponds, and evenings spent hiking up a mountain for a view of the sunset, all in and around a land of natural beauty that, on a different course of history, might not be open to exploration for a youthful mind’s delight.  It was there, watching boats from a harbor pier that the seed of our love of sailing was born.  It was there, from a fish tank in the back of small gift shop, that we picked our first Maine lobster dinner.  It was there, in the wonder of the landscape, that the natural separate spheres of parent and child, slipped away and we began to see one another as integrated human souls.   We unite in our time together, and we unite in our shared experiences, and through that we create our small legacy together.

So, in honor of the David and Peggy Rockefeller giving legacy that is unfolding this week, I urge you to design a legacy for your family, make a plan, and get started.

FAQs: How Can I Make Sure Money is Available to My Heirs Immediately at My Death?

Answer: A combination of purposeful titling and beneficiary designations, along with a revocable trust.

From time to time, you may have heard stories about assets being “tied up” for months (often years) after the owner’s death.  The reality is that this is less likely to occur when your asset information is organized and if the executor or administrator is motivated to finish the process.  Still, the named executor or the deceased owner’s spouse, children, and other beneficiaries will have to wait several weeks or even a month to get a probate appointment.  During that time, they may not have access to any of the funds, creating a hardship if they do not have their own assets.  This is because an estate plan that relies on either a will or state law to dispose of assets is subject to a process called “probate.”  During the probate period, only the executor or administrator has the right to control estate assets, and all actions of the executor or administrator must be reviewed by the appropriate government authority.

If immediate availability of assets is a priority for your dependents or loved ones, creating a revocable trust may be the most efficient way to arrange your affairs.  Revocable trusts act as your silent alter-ego, holding your assets for estate planning purposes but not restricting your control over them.  Unlike property passing by a statute or will, when property is owned by your revocable trust, it is not subject to probate at your death.  This means your successor trustee has immediate access to the assets upon proof of your death and, depending on the dispositive terms of the trust, the authority to distribute them to your loved ones quickly after reserving an appropriate amount for the payment of debts and expenses.

Also note that assets that pass by beneficiary designation (for example, life insurance and retirement accounts) and those that pass by title (jointly-owned accounts and real estate) are excluded from the probate process.  This is one reason life insurance can be such an important part of an estate plan – it gives your loved ones immediate access to cash, which minimizes the risk of bills falling behind or beneficiaries scrambling to pay funeral or memorial service expenses.

Some elderly people, as a matter of convenience, add a child to a bank account as a joint owner to pay bills.  Though well-intended, this can cause problems when that child inherits the account at the funding owner’s death and then does not make a gift to his or her siblings (or, in some cases, has to file a gift tax return to do so).  Also, if that child has or develops creditor issues, monies intended for the elderly parent’s support can be seized.  A better arrangement is to title the account in the name of the parent’s revocable trust and name the child as a co-trustee.  This allows the child to pay bills for the parent during his or her lifetime, but still makes the funds quickly available to all the beneficiaries the parent intended at his or her death.

If your intended beneficiaries will have immediate cash needs, or if you need assistance managing assets in your later years, it is critical to review your estate plan (or remedy your lack thereof) to ensure that those needs can be met.  For help, contact Schooley Law Firm. Together, we can evaluate your circumstances and determine what kind of plan will provide the support you and your loved ones require.

And if you liked this article, check out our previous post, Three Lists You Need To Know For Asset Management.

Jennifer Schooley  |  Contact | Estate Planning