A Vacation Home Succession Plan

A Vacation Home Succession Plan is an advanced Estate Planning strategy which can help parents to ensure that their vacation home can successfully be passed on and maintained within the family by succeeding generations. 

A Vacation Home Succession Plan typically includes the following:

  • Transfer of the vacation home to a special purpose limited liability company (“LLC”).
  • Creation of an LLC Operating Agreement with special features to address the decision-making, scheduling and expenses of the vacation home and divorce and liability protection, as well as guidelines for future purchase and sale of ownership interests by one or more family members.
  • A funding mechanism, such as a Vacation Home Endowment Fund funded by either a share of the parents’  estate, a life insurance policy, or a dedicated investment fund established by the parents.
  • Investment management and banking  guidelines for managing the Vacation Home Fund.
  • Coordination of the LLC with the parents’ Living Trust and Financial Power of Attorney. 

 

  

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About Nick Niemann

Nick is a partner in the Omaha-based national law firm of McGrath North.

  • As a third generation co-owner of a family farm LLC and the owner of a Minnesota lake cabin, vacation home succession planning has been an important issue for Nick.  The area also complements the pre-exit and succession planning he does for business owners.
  • He has advised clients throughout the country on a variety of vacation homes, such as a family vineyard, castle, condo, lake home, farmhouse, beach home, chalet and cabin.
  • Nick has taught Estate Planning for the Creighton Law School.
  • He is the founder of BriefBack business Institute LLC, which publishes business owner pre-exit and succession planning guidance.                          www.OwnersNextMove.com.

MCGRATH NORTH
MULLIN & KRATZ, PC LLO
1601 Dodge Street, Suite 3700
Omaha, NE 68102
Telephone (402) 633-1489
www.McGrathNorth.com
NNiemann@McGrathNorth.com

See Disclaimer here.

How to Keep Your Vacation Home in the Family without Tearing the Family Apart

For Jack and Jane, their lake cabin in Minnesota had been the ideal family retreat.  Their three children, Bob, Betty and Bill, had learned to fish and water ski during their summer vacations and how to snow ski during their winter breaks.  Their cabin had also been ideal for weekend get-a-ways, with the family also frequently hosting their childrens’ friends and making over three decades of memories.

The cabin had become a second home for the family.  And now that each of the children was married with children, it was becoming a memory maker for each of their families as well. 

However, Jack and Jane’s enjoyment of the family retreat was also the source of some worry.  While they hoped their family would continue to always get along, they weren’t so naive to expect that would be the case.  The last thing they wanted was for the cabin to become the source of disputes and heartaches.

Their estate planning attorney had simply placed their vacation home into their Living Trust, to be distributed to the children equally after Jack and Jane passed away. When Jack and Jane came to meet with me to discuss their pre-exit and succession planning for their family business, they also wanted to discuss their vacation home succession planning.  They had specific questions they wanted to address about the future of the cabin after their deaths:

  • What would happen to the cabin if one of the children died?
  • What would happen if one of the children got divorced?
  • What would happen if one of the children couldn’t afford (or didn’t want to pay) their share of expenses (or had future creditor problems)?
  • What would happen if one of the children insisted on selling their share?
  • What would happen if the children disagreed about how the cabin would be operated and maintained?
  • How could the cabin’s use be scheduled to avoid disputes?
  • How could the cabin be preserved so it could be passed down to Jack and Jane’s grandchildren after their childrens’ deaths?
  • How could this be accomplished in a tax efficient manner?

Jack and Jane presented the classic situation for Vacation Home Succession Planning.  Vacation Home Succession Planning (also known as Cottage Succession Planning) refers to the legal and financial strategies used to help keep the family vacation home peacefully and effectively in the family for successive generations.  These strategies can be used whether your vacation home is a million dollar second home overlooking the ocean or a small log cabin in the woods.

This form of advanced Estate Planning comes into play whenever a family has a cabin, beach house, cottage, lake home, camp,  farmhouse, chalet, ski condo, hunting lodge, winter home, summer home, second home or other vacation home which they want to pass on to their heirs to keep in the family for future use and enjoyment.  The use of a regular Estate Plan, even with a Living Trust, is not adequate.  The questions which Jack and Jane had, along with others, are each addressed in a Vacation Home Succession Plan.

 

 

 

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