It’s natural, then, to want your second home to be enjoyed by the next generation after you are gone. But deciding how to accomplish that goal poses a special challenge when it comes to estate planning.
Simply bequeathing the house outright to your children or siblings may lead to unexpected family strife. For example, if they inherit the property in equal shares, they should divide the costs of upkeep equally as well. But one of them may use the home considerably less often than the others and feel that his share of the costs should be proportionately lower. Or if one of the owners is delinquent in paying his share, the others may have no practical way of forcing him to pay up.
Even if money is not an issue, tensions may flare over scheduling conflicts, especially on particular holidays. One of the co-owners might prefer to sell his share of the property, but the others might not have the means to buy him out. In this case, it may be possible for one of the owners—even if he owns a minority stake—to force the sale of the property against the others’ wishes.
Proper planning can help prevent problems like these while preserving family unity.
The first step is to have a serious discussion with the potential inheritors. Ask them whether they would want to own the property jointly, how much use they would make of it, and whether the costs of upkeep would be manageable.
A plan should then be devised and put in writing. With the help of an estates and trust lawyer, you can determine what form the written plan should take, whether a limited liability company (LLC) operating agreement, a trust, or a simple property-management agreement.
Creating an LLC can be an especially effective approach. Instead of conveying separate interest in the home to the new owners through your will, they would recieved membership interests in the LLC. The operating agreement would prevent one owner from forcing the sale of the property, and it would enable an owner to redeem his share of the property without creating a crisis.
Whatever form it takes, the written agreement should take potential points of conflict into account. These include scheduling, rent, pets, and use by outsiders. Management responsibility should be assigned, and a strategy for covering the cost of utilities, maintenance, and taxes should be laid out. You can also consider restricting each owner’s ability to transfer his interest in the home, to prevent a divorce or bankruptcy from creating a new and possibly unwelcome co-owner.
Another estate-planning challenge with second homes is how they should be titled. If the property is located outside of Maryland and titled in your name alone, it may be necessary to open a separate estate upon your death in order to transfer the home to the new owners. This procedure, called “ancillary probate,” would be in addition to the primary estate that would be opened to dispose of your Maryland assets.
One way to avoid ancillary probate is to place the home in a revocable (“living”) trust. Then, upon your death, the property would transfer to the beneficiaries you have named in the trust document. Creating a life estate, which would transfer the property automatically, is also an option.
A second home is like a family heirloom. With a little foresight, you can ensure that it will be a welcome retreat for the next generation of family and beyond.