You can cut battles over vacation home
Ivory Ruud,
Thomsen & Nybeck:
612.331.5977
iruud@tn-law.com
www.tn-law.com
SETTING UP a trust to hold your family real estate, whether it’s a lake cabin or other vacation property, is one way to reduce estate taxes and other related expenses associated with individual ownership.
Most of us decide to put property in trust for financial reasons, but a trust can also be created to take into account the future needs and relationships of your children, grandchildren or other trust beneficiaries.
How can you set up your family real estate trust to make it truly workable? Taking the time to incorporate the following considerations into your trust planning may minimize conflict among the beneficiaries and ensure that the terms are conducive for all parties.
Equal treatment
Unequal use: Do some of your children spend more time at the property than others? Are there children who have no interest in the property or live too far away to enjoy weekends there? You may wish to make only those children with an interest in the property beneficiaries of the trust. To treat children equally, those with no interest in the property could receive different assets such as cash, stocks or other real estate.
Unequal effort toward maintenance: Does one child help more with maintenance than others do? We’re all familiar with the scenario: everyone is up at the cabin for the weekend and some are chopping firewood and mowing the lawn while others are reading on the dock.
Should those chopping and mowing have more access rights or management control than those reading? Should those chopping and mowing be compensated for their time? If so, where will the funds come from? If these items are addressed in your trust, the rights and obligations of all beneficiaries will be clear.
Disparate ability or willingness to cover costs: Are some of your children better financially able to manage the costs of owning a vacation property (property taxes, maintenance and repairs) than others? If one child contributes funds toward repairs, remodeling or maintenance, should she or he be reimbursed by the other siblings?
Your trust should address these issues by carefully defining which expenses are reimbursable, how reimbursement is to be made and to what extent all beneficiaries are to be involved in decision-making.
Providing funds for the payment of some or all expenses: Who will provide funds for the upkeep of the real estate including property taxes and other expenses? Often, beneficiaries are busy spending their income on their own property and children, leaving little for the maintenance of family vacation property.
In addition to your trust, a well-crafted estate plan can help ensure that funds from your estate are available to pay property taxes and to maintain the property so that it does not become a financial burden for the beneficiaries.
Dispute resolution: How will disputes about the property be resolved? Deciding on a course of action before disputes arise can ensure that all parties will be treated in a fair manner.
Ownership by divorcing spouses or creditors: Some trust interests are reachable by a beneficiary’s creditors and some trust interests may be deemed marital property under state laws. Even if these are not immediate concerns, you may wish to consider including trust provisions that minimize the rights of creditors and former spouses.
All in the family
As with other types of long-range planning, it often helps to involve your trust beneficiaries in establishing a plan for the transfer of ownership and management of the family vacation property. Your children are likely to have different goals, insights and objectives than yours and may have their own estate planning concerns.
Establishing a trust for your family vacation property can help to ensure that it remains available to all family members. Taking time to discuss the above issues with your attorney-and with your children-will help you create a document that can keep the property in the family for years to come.
A well-crafted document can reduce conflict and help your children maintain the vacation property as a place of enjoyment and relaxation.
