By Patricia M. Angus – Originally published in WealthManagement.com July 2015
Five tips for making frolicking more likely than fighting.
Ahh, summer. A time to get away to the family vacation home, kick back, bask in the sun and gather with friends and family in an age-old ritual. Some families have been doing it for generations, others are now starting their own traditions. Sounds idyllic, right? Well, anyone who shares a vacation home with family can attest that while the setting might be ideal, and there might be some basking involved, the kicking back isn’t always of the relaxing sort. Even if the kicking isn’t literal (and if it is, please get help immediately), co-owning and sharing use of a family vacation home can be challenging. For those with clients who are lucky enough to be in this situation, here are some tips on how to help them make frolicking more likely than fighting.
Know Who Owns It
Knowing how the house is actually owned will go a long way to keeping the peace about how decisions are made. Of course, if your client is the sole owner of the house or owns it with a spouse, ownership is a fairly simple matter. Your client (the individual or the couple) has the first, and often final, word on all major decisions about the house is on the hook for covering all its expenses. However, for many families, a house might have been passed down from parents to children or even to grandchildren and extended family. In other cases, related family members, such as siblings, might decide to pool resources and buy a place together. Some families set up entities such as limited liability companies to allocate ownership among family members. Because ownership is the starting point and legally the ending point for rights and responsibilities, help your client to make sure that everyone knows how much they own, and how.
Have Regular Meetings
Just as shareholders of a corporation meet annually to discuss the company they own, so too should homeowners meet or have a group conference call on a regular basis to discuss major issues. These will include long-term issues (do we need a new roof?) and short-term ones (who can use it for spring break?). Here’s where the old adage “don’t try this at home” might apply. While many families are accustomed to having meetings and are comfortable discussing difficult issues as a group, this doesn’t always come naturally. And the potential harm from opening up difficult topics in public can be quite serious. In many cases, it helps to have an outside facilitator work with the family to keep the dialogue productive and healthy.
Create Rules for Usage
Paradoxically, a family vacation home represents a chance to get away from the rules of everyday life, yet the best way to ensure a peaceful environment is to have some rules for usage in place. Your client’s family will need to establish rules on: (1) when it can be used, (2) who’s responsible for upkeep, (3) what are the expectations for cleanliness and tidiness, and (4) what to do when something unexpected occurs on the property. Conflicts can get heated, especially if there’s some past history involved. These conflicts usually center around conflicting assumptions, values and goals for the property. The home might mean very different things to family members, and how they want to use it will reflect that. Values such as fairness, equity, freedom, independence and community will all be at stake. These topics are best discussed openly when the owners meet. Keep in mind that all families have these issues, and there are no simple answers. The only way to resolve potential conflicts is for your client’s family to have open discussions and make reasonable compromises.
Decide on Allocation of Costs
There are basically two kinds of costs for most vacation homes: capital costs and costs related to ongoing usage. Capital costs will include the cost of purchase and any major changes or improvements to the property, such as a kitchen renovation. In most but not all cases, owners will share capital costs proportionately to their ownership interest, and the benefits, or losses, will be shared equally when the house is sold. Note, however, that these questions can be difficult when the financial resources vary across owners. Usage costs can become difficult to allocate fairly when the level of use varies across family members. Your client’s family should address and revisit these issues at least annually to make sure that everyone is on the same page with the priorities and level of each owner’s commitment to the property.
Look to the Future
The legal nature of the home’s ownership will determine what family members can do with their interests in the event of death, divorce or sale. For example, tenants-in-common can sell or gift their interest to anyone they choose, while the share of a tenant with right of survivorship will automatically transfer to the other owner(s) at death. Owners should discuss their wishes about what they can do with their ownership interests in each of these, and other, possible scenarios. Your clients should coordinate their estate plans with the home’s co-owners to prevent surprises. The best time to do so is long before any of those circumstances arise.
Sharing a family vacation home can be a blissful thing, indeed. And a family who follows some of these tips can find ways to make the fun last even longer. Now, everybody in the pool?