It’s summer after all. It’s time for some new memories to be made at the family vacation homes. The vacation home is one of those assets that really needs some special consideration. Usually there is a desire to keep this home in the family. There is a lot sentimental attachment to a vacation home. If you don’t plan for it properly, there may be challenges in the future.
I was working with a family a few summers ago and learned about some unique issues that pertain to vacation homes. This home was a condo in southwest Florida. Two grandchildren of the original owner were going to purchase the condo from the grandparents’ estate. This would keep the home in the family and pass on the memories of the property from one generation to the next. Sometimes it’s difficult for family members from a later generation to purchase property from a previous generation. Financing the purchase can be a challenge. With a vacation home, sometimes renting the property when the family will not be using it can ease the financial burden.
The condo association had a rule: No renters during the first year of ownership. It wasn’t a deal breaker scenario, but financially it was a more palatable option for the new (family) owners to be able to rent in the first year. It was a long term rental. There was a retired couple who had been renting in the condo complex for several years. The unit that the couple had previously rented was no longer available. The association did end up allowing renters in the first year.
I’m not sure the precise reason why, but it does leave a few important points for consideration. A lot of HOA rules are retroactive. The rules apply to the new purchasers, but the current owners are not subject to the rule. This may be a reason to consider some form of “entity” ownership. Maybe the property could be owned by a limited liability company (LLC). The entity will own the vacation home and as the home passes through generations. Because the entity does not change, future changes in the Homeowner Association regulations will not affect the vacation home.
As this story shows, there are traps for the unwary lying everywhere in the estate planning process. Contact me to steer clear of these traps.