Vacation Homes: Top Estate Planning Considerations

With the arrival of warm weather, you may be dreaming about upcoming travels to a beach, lake or mountainside home. Whether you are considering purchasing a vacation home and don't know how to take title in the property or you now own a vacation home and are thinking about giving it to your children, here are some estate planning issues to consider. 1. General Title Issues. After you've decided to buy a vacation home, you'll need to decide how to hold title to it. Should title be held in your own name? Or jointly with a spouse or other individuals? And if jointly, should it be held with rights of survivorship (meaning if one co-owner dies, the remaining co-owners automatically inherit the decedent's share) or as "tenants in common" (meaning on the death of one of the property owners, the decedent may name who inherits his or her share of the property in the decedent's will)? There's no single correct answer. The right answer for you will depend on your specific circumstances, and most estate planners recommend clients consult with them about how to title property before finalizing a purchase. General considerations include the relationship between co-owners, whether the proportionate ownership interests of the co-owners will reflect the portion of the consideration each provided (if not, gift tax issues may arise) and whether each co-owner has sufficient other property to take advantage of his or her remaining federal or state estate tax exemption amounts.1 For spouses purchasing property jointly, the law of many states often defaults to a form of joint ownership with survivorship rights unless otherwise specified. An advantage of this "survivorship" ownership is that upon the death of the first spouse, the property immediately and automatically passes to the survivor without being subject to probate court proceedings. The primary disadvantage is that if property passes automatically to the surviving spouse, the decedent can't use this property to take advantage of his or her remaining estate tax exemption amounts. 2. If Your Vacation Home Is in a Different State. You'll want to be even more careful about how you hold title if your vacation home is in a different state (the "ancillary state") than your primary home (your "domiciliary state"). If at the time of your death you own real estate or tangible property (such as furniture) in an ancillary state, the executors of your will may be required to go through a second probate proceeding in such state with respect to such property (as well as a full probate proceeding in your domiciliary state). While ancillary probate is not bad in and of itself, structuring your assets in a manner to avoid it may save time and expense in the administration of your estate. One manner by which to avoid ancillary probate was...