Vacation homes are often treasured family assets with significant sentimental and monetary value. They are places where memories are made, and where we can envision memories being made by generations to come. But without proper planning, your dreams for your vacation home can become a nightmare for your children and grandchildren.

If you have a vacation home, whether it’s a cottage at the lake, a condo at the beach, or some other treasured getaway, then you need to plan for how that property will be handled in the future. This is is at the top of the list: how do you ensure the family vacation home passes to the next generation without causing family fights (or worse)?

One principle is clear – traditional forms of ownership don’t work well for family vacation homes. The main risk is that as the ownership becomes fractionalized passing down to subsequent generations, a family member will use his or her right to partition the property and force a sale. This might be a sibling who lives too far away to use the property, or a grandchild who cannot afford their share of the upkeep costs.

Another risk is that conflicts may arise over how the home is operated, maintained and improved. How will the operating expenses (taxes, utilities, repairs, etc.) be shared? What if someone doesn’t make their contribution? How will use be allocated among the future owners? What if one of the owners wants to rent his or her week(s) to a third party?

Use an LLC to own your Vacation Home

An LLC (limited liability company) is an ideal ownership vehicle for owning family vacation homes. They provide an easily transferable form of ownership and an Operating Agreement spelling out the rules for operating the property and transferring interests.

Issues to Address in the LLC Operating Agreement

The LLC Operating Agreement is the document that sets out the rules for the operation of the LLC, and when you’re planning for a family vacation home, it can be a powerful tool for making sure issues don’t become major problems for future generations. Your Operating Agreement can address issues like:

  • Should family members have the right of first refusal before the vacation home can be sold to a non-family member?
  • How should responsibility for the expenses of owning, maintaining and improving the property be allocated? And what if an owner doesn’t pay their share?
  • How can the use of the vacation home be fairly allocated, especially for the most desirable dates?
  • How will people be held accountable for damage to the property caused by members, guests or pets?
  • Whether the property can be rented to non-family members?

We can help you plan for your Family Vacation Home

Ideally, the time to set up the LLC is now, with the original owners establishing the rules (with or without input from the family). Once established, the LLC interests can be held in a Revocable Living Trust (so they avoid probate) and passed to the next generation through the trust.

If your vacation home is in Michigan, the issues are the same but the approach needs to be different. Please read our article on Planning for your Michigan Vacation Home to learn more.

Every family is different, and every family will approach the planning for their family vacation home differently. We are here to help you work through the issues and come up with a plan. Reach out to us today to schedule a no-cost initial consultation. Call 419-872-7670 or request an appointment through our website.