A beach house that a family can protect with an LLCAs an attorney who creates estate plans, when I'm on vacation I get into some interesting conversations. One recent conversation centered around all of the changes that have happened in our local beach town. Walking around town, there are so many new vacation homes being constructed (and recent builds) and the town is starting to feel very different from the one that I grew up visiting each summer with my grandparents.

If you or your family has had a beach house that you've loved to visit in the past, it's probably got generations of memories in its walls and you don't want a small lapse in judgment to take it away from your future generations. When I was a child, I spent each summer at the beach, going to the boardwalk at night, playing card games under the porch furniture on rainy days, and generally doing all those fun things that make summers so memorable. When you are young, you don't need to worry about things like who really owns the house and what is the plan for the house when Grandpa and Grandma pass away. It's a joy of childhood.

But as you get older, that issue can become an important one to deal with:

  • Is there a long-term plan for the house to keep it in the family?
  • Are there plans to sell it and do something else with the property?

There are entire books on the subject of what you can do with vacation homes. However, I'm going to give you three quick things for you to think about when considering estate planning for your beach house.

3 Things To Consider

The planning that can go into a vacation home's future can be extensive, but there are 3 things you want to consider:

  1. Make sure you're talking to the whole family ~ You don't want to create a plan where two or three family members never even knew what was coming. They didn't even know what was going on. They wanted to be in the family plan or, on the other side of things, maybe they live far away and it's too hard for them to get to the beach and they just didn't want an ownership interest. Maybe they just like to come to visit sometimes.
  2. Make sure you plot out your plan for the future ~ Who's it going to? What's it going to look like in the future, who are going to be the owners, and what are going to be their different roles? When the entire family has had this discussion, it can make the plan a lot simpler than simply Mom and Dad leaving a mess for the next generation to sort out.
  3. Create the plan.

From a legal standpoint, the most important question you have to figure out is how is the vacation home going to be owned going forward?

Ownership of the Beach House

Like any other property, you can have different ownership structures. In the case of vacation homes, I often see three common structures:

  • Direct Ownership ~ This is a common way, let's say mom and dad own it. They can use a Transfer on Death Deed (if it is available in your state) and have it automatically go to their children, or Mom and Dad own the beach house with their siblings with a right of survivorship, meaning the last sibling to be alive owns the house. Or you can also use direct ownership for the shares to be passed along to the next generation from their parents.
  • Using a Trust ~ A trust is going to be a little more advanced and it's going to have a lot more rigidity. It's going to have a structure to it and the trusts are going to detail what happens with the beach house and how we divide things up. But it will also make sure to keep that vacation home out of the probate court so we're not going to have to worry about a court coming in and possibly selling the property.
  • Using an LLC ~ This is a common way my clients do it. I think it's a great way if you're renting out your property to put the property into an LLC. So you're creating a business an LLC, that will be the owner of the property. One of the primary advantages of this is that it can eliminate liability, so if somebody rents the property and is injured and sues the owners, they're not able to go after your personal assets. They're suing the LLC, and the assets of the LLC are usually going to be limited to the assets of the LLC (the property it owns). Another benefit of the LLC is that you can protect your name and privacy if that's something you're concerned about. You can take that rent that comes in and use that money to reinvest into the property without showing up on your tax return. And then of course, at the end of the day, it's a great way to keep this asset out of probate court. So rather than having individuals own this property when somebody dies, the probate court has distributed the LLC will have provisions about what happens when an LLC member dies, and what are the next steps. So you can just have that LLC membership being inherited from different members of the family, as opposed to having to go into the probate court if somebody dies.

Do You Need an Estate Plan?

If you or your family has a beach house that you want to make sure is in your estate plan, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.
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