Passing Down Paradise: Estate Planning for Your Vacation Home

Do you have a cabin or lake house  that you want to keep in your family? Few assets are as emotionally charged as the family vacation home. It's the place where memories are made, traditions are kept, and bonds are strengthened. But without proper estate planning, that slice of paradise can quickly become a source of conflict and financial strain for your loved ones.

The responsibility of inheriting these properties can cause terrific friction, and families find themselves in probate court, fighting over shares, taxes, upkeep and who mows the grass. One child freezes their siblings out of the home.  The others get frustrated and soon nobody is talking to anyone.  That’s not the legacy you envision, is it?  A Vacation Home Trust is designed to solve these problems before they start.

Estate Planning Issues Specific to Vacation Homes

Vacation homes present unique estate planning challenges compared to primary residences. Here are a few key considerations:

Out-of-State Property

If your vacation home is located outside of Pennsylvania, your estate may be subject to probate in that state as well as in Pennsylvania. Most people want to avoid probate.  Your out-of-state property can double the probate proceedings (and costs) for your family.

Family Dynamics

Sibling rivalries or differing financial situations among your children can create tension over the use, maintenance, and ultimate disposition of the property.

Maintenance and Expenses

Vacation homes often require significant upkeep, including property taxes, insurance, utilities, and repairs. Who will be responsible for these costs after you're gone?  Are they all willing to pay their share?  What happens if someone doesn’t pay?

Usage Conflicts

How will your children decide who gets to use the property and when? What happens if someone wants to sell, but others don't?

Transfer Taxes

Pennsylvania inheritance tax and federal estate tax implications need to be considered to minimize the tax burden on your heirs.

Common Problems When Passing Down Vacation Homes

We've seen firsthand the problems that can arise when vacation homes are passed down directly to children without a clear plan:

Disagreements over Usage

"Mom always let me have the first week of July!" A child reaches retirement age and decides to stay for long periods of time, rendering the property unavailable to other family members.  Disputes over scheduling and access can quickly escalate.

Financial Burdens

While you were alive, you paid most of the bills.  After you’re gone, your heirs get the bills.  Some or all heirs may struggle to afford the ongoing costs of maintaining the property, leading to disputes, resentment, neglect or forced sale.

Credit Problems

If one of your heirs is sued and a judgment entered against them, that judgment will be a lien on your vacation home if your child’s name is on the deed.  Even one child with bad credit can risk the forced sale of your home.

Forced Sale

If siblings can't agree on a plan, a lawsuit might be necessary to have the property sold and proceed divided, severing the family's connection to the home.

Divorce

If your child’s name is on the deed, the property is now a marital asset and subject to claims in the event your child is divorced.  One child’s divorce is a problem for everyone who has a stake in the property.

4 Reasons for a Vacation Home Trust

Fortunately, there are steps you can take now to avoid these pitfalls and ensure a smooth transition of your vacation home to the next generation.  Talk to your children about your wishes for the property and their willingness and ability to maintain it.  We also recommend that you consider placing the home into a vacation home trust.  Here are some of the many benefits of a trust:

1. Avoids Family Conflict

While you’re here, it’s your house, your rules.  That doesn’t have to end when you’re gone.  If your goal is to leave your cabin to your kids, they are going to need a rule book. If not, conflicts can begin as soon as you are gone. What if two families want to use the cabin Labor Day weekend? What if one won’t pay their share of the taxes, insurance and maintenance costs? Who is going to decide if the roof needs to be fixed? What if one child wants to sell their share because they need money? What if one of them drives off with the boat and won’t tell anyone where it is? Won’t happen in your family?  Think again.  We’ve been called upon to help families with every one of these problems and getting attorneys involved is expensive.  Solving problems after the fact is always expensive.  Planning for them in advance will not only save your family from unnecessary conflict but also unnecessary expenses.

2. Avoid Probate 

Property left in your name at death must go through the probate process to pass to your family. This is a process that can take many months and cost thousands of dollars. It also allows for claims and litigation. You could avoid probate by signing a deed making your beneficiaries joint owners while you are alive. That’s almost always a mistake.  This would result in a loss of a step-up in capital gain cost basis - which, with escalating property values, could cost your family far more than even the cost of probate. There are many hidden problems associated with putting someone else’s name on the deed.  A Vacation Home Trust avoids probate and the negative consequences of using a simple quit claim deed.

3. Protection from Your Kids’ Personal Problems

Divorce – half of all marriages end up in divorce. Bankruptcy. Kids who don’t get along. A child with a disability or special needs (owning a home could disqualify them for valuable government benefits). A child with addiction challenges. These are quite common family issues for most people. Do you really want your ex-daughter or son-in-law to get a share of your family home in a divorce? 

4. Protection from Nursing Homes. 

One of three people end up needing care in retirement facility at some point in their lives. In 2024, the average monthly cost of nursing care is about $12,000.  A prolonged stay in a nursing home can quickly erase a lifetime of savings. While your primary residence is currently protected from long term care costs in Pennsylvania, a second property is not. It must be sold to help pay for these costs if you seek government assistance for your care. A Vacation Home Trust is designed to protect against this scenario. Property in the Vacation Home Trust is not countable against nursing home costs, provided it is completed sufficiently in advance of this need.

Get Your Vacation Home Trust Started Today

Passing down a vacation home can be a wonderful way to preserve family memories and create lasting bonds for generations to come. But it requires careful planning and open communication. Don't wait until it's too late.

We have experienced estate planning and real estate attorneys at Fiffik Law Group who would love to help you achieve dream for the family vacation home.  You’ve spent considerable time and money on the property.  Don’t skip this crucial step of putting a plan in place that will allow your family many years of conflict-free enjoyment of your vacation home.