The idea of owning a vacation home is very appealing to many, including Colorado residents who often own properties in ski country or the islands to escape the snow. However, careful consideration is needed regarding the property’s future disposal or its continuity within the family. For instance, if a couple with four children owns a vacation home, upon their passing, the property becomes co-owned by their four children. As subsequent generations emerge, the number of owners could increase significantly, potentially leading to disagreements on how to manage the property. Some might see the ownership as a burden rather than a benefit, highlighting the importance of a well-thought-out succession plan.

Determining the title ownership structure is a critical initial step. Many purchases are made without considering the best way to hold title, such as Joint tenancy or Tenants in Common, which may serve immediate needs but lack foresight for the future. Over time, the importance of revisiting the title holding arrangement or establishing a succession plan often goes overlooked.

There are various ways to hold title beyond the two common methods, requiring consultation with an attorney familiar with estate and succession planning. The choice of ownership form might be influenced by the property’s location or the state laws applicable to the owners.

Possible title ownership structures include:

  • Trusts and General Partnerships
  • Limited Partnership
  • Limited Liability Limited Partnership
  • Corporation
  • The Close Corporation
  • S Corporation
  • Limited Liability Company

Each ownership form has its pros and cons. Questions to consider when choosing the right form of ownership with your attorney might include:

  • Does the entity protect owners from creditors’ claims?
  • Can an owner file for partition of ownership?
  • For properties in rental programs, is income and loss pass-through to members possible?
  • Can the entity hold an endowment to support the property?
  • How are governing documents amended?
  • What are the tax implications?
  • What happens if an owner wants out?
  • Does the entity exist in perpetuity?
  • Are there agreements for usage, expenses, maintenance, supplies, cleaning, improvements, etc.?

Preventing the vacation home from becoming a burden involves careful planning. Upon the original owners’ passing, heirs may have different views on managing the property, with some seeing it more as a financial burden than a gift. One solution is establishing an endowment fund to cover expenses, thus preserving the property within the family without imposing financial strain. This requires identifying the expenses and determining the fund size needed to generate sufficient income.

This article aims to encourage vacation homeowners to consider establishing a succession plan, seeking out an attorney skilled in creating plans tailored to vacation homes. A professional can consider the family’s wishes and objectives, devising a plan that aligns with their needs.

By Duane Duggan. Duane graduated with a business degree and a major in real estate from the University of Colorado in 1978. He has been a Realtor® in Boulder since that time. He joined RE/MAX of Boulder in 1982 and has facilitated over 2,500 transactions over his career. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail duaneduggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.