How to Avoid Family Conflict When Passing Down Your Vacation Home

4/27/2021 1:37:00 PM

Bell Bank News

It might be difficult to imagine that a lake or vacation home – so often places of family closeness and magical memories – could cause a rift in the family. But we’ve seen that scenario play out time and time again when families fail to implement a succession plan for the home – or communicate that plan to their children and grandchildren.

In fact, the asset that creates the most consternation for a family to pass along to the next generation is often the family vacation home – whether it’s a cabin, beach condo or winter vacation home.

Consider, for example, if you have a child who always takes care of the repairs and upkeep, but doesn’t have enough money to buy the property from your estate. What happens when children – or even adult grandchildren – start arguing over scheduling, regular upkeep and major repairs?

A succession plan allows you to answer those questions before they become problems your family has to figure out when you’re no longer around. There are 2 main methods families typically use to craft a successful succession plan for a cabin or vacation home: a limited liability company (LLC) or a trust.


An LLC can offer some creditor protection and is a better option when there is a chance property management might be involved (if you plan to rent out the home). However, LLC membership units are probate assets, unless they are owned in the name of a trust.


With a trust, you avoid probate, and your estate planning lawyer can draft specific terms in the trust pertaining to the property, including its management and succession, based on the family’s wishes. This can be a good option when there are no plans to rent out the home.

Some families opt to fund the LLC or trust with an endowment, so that money can help pay for repairs. If you want to make sure your kids have “skin in the game,” you can have them contribute financially toward that fund. You can also do both.

Another option is to purchase a survivorship life insurance policy, which provides money to fund an endowment, so those dollars can be invested and generate income to pay for repairs and upkeep. The funds could even be used to buy out a family member who does not want ownership in the property.  

The most important part of these agreements – before they’re even written – is that there is frequent, clear communication among all involved adult family members (including in-laws) and that the details are well-defined while the current property owner is still living.

A good first step is to hold a family meeting – possibly with your lawyer and financial advisor – to find out who is even interested in the property. If everyone wants it, the next step is to build a succession plan, making sure to answer questions such as:

  • How will scheduling be handled?
  • Who will open and close the property (if it’s a seasonal home)?
  • Who will check on the property in the off-season?
  • Which tasks do you hire someone to do?
  • How will rentals be managed (if applicable)?
  • What are the rules regarding visitors (think: young adult grandchildren and their friends or non-family member use)?
  • How are maintenance and repairs paid and by whom?
  • What happens when one family member no longer wants to use or have ownership interest in the property?
  • How will the property be sold and proceeds distributed?
  • Can the LLC members or trust beneficiaries purchase adjacent property?

The more communication that can take place, the more successful a succession plan is likely to be.

If you want to keep the home in the family, it’s important to make sure there’s enough liquidity to maintain the property and pay estate taxes, if applicable. Otherwise, it may have to be sold, and it’s not always possible to sell before the taxes have to be paid.

When families delay these conversations or do nothing, what ultimately can happen is the property needs to be sold or a rift develops between family members because they can’t figure out how to amicably share the home. People often have different earning capacity and different ideas of how the home should be managed.

One of the biggest challenges happens when parents die and leave a vacation property split evenly between their children. Common ownership without structure or rules can be a complicated issue to solve without an agreement in place ahead of time.

Involving lawyers and financial advisors at some point in the process is crucial, so lawyers can draft a plan that makes sense for all of the heirs, and a financial advisor can handle any endowment that might be created.

Passing down a family vacation home can be complicated. But we’re here to help. Contact Bell Bank Wealth Management at 800.709.5781 to make sure you have a solid succession plan in place.

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This article has been written for the general information of clients and friends of Bell Bank. It is not intended, nor may it be relied upon, as tax or legal advice with respect to any matter. This article also cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service or other taxing authority.