Vacations should be relaxing.
April 22, 2015
by D. Leigh Koonce
The best time to agree on a common management plan for your family vacation home is before you have an epic passive-aggressive family battle raging (and yes, that’s a thing). A written agreement sets out all of the operating procedures and expectations in order to avoid conflict later. Family dynamics and emotions make financial and administrative decisions more complicated if there is no manual to refer to.
A written agreement addresses all of the big questions before they come up, such as:
- How is use of the property scheduled?
- Who gets to use the house? Just family? Friends? Does a family member have to accompany the friends? Is it available for rent?
- What happens if one of the owners dies or gets divorced?
- What if one of the owners wants to sell their share? Who can they sell it to?
- Who is in charge of getting maintenance done?
- How are expected costs (insurance, taxes, electric bill) and unexpected expenses (family of weasels moves into garage, water heater explodes) paid?
- If everyone agrees to sell the vacation property, how will it be valued?
- How will disputes be decided? Mediator? Counselor? Guru?
The type of written agreement you have will depend on how your property is titled, however, regardless of form, the substance of the agreement should address all of these issues. If your vacation home is held in a revocable living trust or an irrevocable trust, all of the instructions can be contained in your trust agreement. If it is held in an LLC or a Family Limited Partnership, then the operating agreement of the limited liability company or the partnership agreement will spell out the rules. If the vacation home is held by several parties (siblings for example) as tenants in common, then a tenancy in common agreement can be prepared for you. There are advantages and disadvantages to each type of ownership for a family vacation property; it depends on your situation which would be best for your family.
Here is an example of a common issue with vacation homes in Forbes: http://www.forbes.com/2010/06/15/joint-property-money-ethics-personal-finance-vacation-home.html