Question 1

Why consider a fee simple transfer?

Accepted Answer

Allows for different forms of ownership, such as tenants in common, joint tenants with right of survivorship or a life estate.
If you make a partial transfer and retain an interest, there is no restriction on your continued use and ability to occupy the vacation home after the transfer.

Question 2

What are the downsides of a fee simple transfer?

Accepted Answer

It lacks the protections of more formal structures. It has greater exposure to creditor claims and intra-family discord, such as a divorce between your child and your child’s spouse. Moreover, a fractional ownership interest in the property may be subject to claims of both your and your child’s creditors.
It typically doesn’t involve formal documentation defining responsibilities among owners as to the use and maintenance of the property.

Question 3

What are important guidelines to follow?

Accepted Answer

Discuss your expectations upfront with your children and maintain consistent open lines of communication.
If your family circumstances change and family members agree to sell the property, all owners, including those with fractional interests, must agree on the terms of sale.

Question 4

Why consider a revocable living trust?

Accepted Answer

Real estate held in a revocable living trust should not be subject to probate at your death.
At your death, your revocable living trust can create an irrevocable trust to continue to own the vacation home.
Allows for continuity of management through co-trustees and successors, so you can feel confident that the family will be able to use the home without interruption or court involvement in the event of your death or disability.

Question 5

What are the downsides of a revocable living trust?

Accepted Answer

Possible gift tax issues may arise if children wish to contribute funds for maintenance expenses, improvements, or repairs to the vacation home.
It is not the best vehicle if multiple parties are responsible for the financial obligations of the property.
Complications can arise if there is no clear direction for co-trustees or successors as to the vacation home’s intended use, management and disposition.

Question 6

What are important guidelines to follow?

Accepted Answer

Ensure there are sufficient additional funds for maintenance costs and property taxes.

Question 7

Why consider a family entity?

Accepted Answer

Ease of transferring entity ownership interests to children while maintaining the ability to stay involved.
The entity’s operating agreement can govern the management of the vacation home and provide clear expectations around its use and maintenance.
The entity agreement can include provisions that protect the vacation home from potential family conflict, divorce, and property division.
If some or all family members want “out” of the vacation home, the entity agreement can address exit options and specify that if the sale is to a third party, that all entity members must agree.
- The agreement can provide for an orderly and equitable distribution of proceeds as well as personal property.

Question 8

What are the downsides of a family entity?

Accepted Answer

Question 9

What are important guidelines to follow?

Accepted Answer

·It is crucial to properly establish the family entity and operate it in a professional manner for it to be respected if ever challenged.
- Keep clear records of contributions, expenditures and management decisions.
- Ensure there is sufficient liquid funds to provide for ongoing maintenance and other needs, with a clear delineation of personal family member and entity funds.

Question 10

Why consider a QPRT?

Accepted Answer

Can help minimize transfer taxes associated with the gift of a family vacation home.
The value of the property transferred to a QPRT for gift tax purposes will be less than the value if the property were transferred outright.
You may continue to have full use of the property during the initial trust term.

Question 11

What are the downsides of a QPRT?

Accepted Answer

You must outlive the trust term in order for the value of the vacation home to be excluded from your taxable estate.
QPRTs are not efficient for passing a vacation home down to grandchildren or more remote descendants.

Question 12

What are important guidelines to follow?

Accepted Answer

If you survive the initial trust term and want to continue residing in the vacation home, you must pay fair market rent to the new owners – typically your children or a trust for their benefit.
- You may feel uncomfortable paying rent to your children or a trust for the right to live in what was once your own property.