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The Vacation Home: Uniting the Family or Tearing It Apart?
- February 3rd, 2005
The New York Times Magazine ethics column ("The Ethicist") recently featured a question from a man who had inherited a vacation home along with his brother. Twelve years later the property has appreciated considerably in value and the brother wants to either sell the property or have the writer buy out his half at the current market value. The writer cannot afford to buy out his brother, though he could have 12 years earlier at the property's lower value then. At the same time, he's reluctant to let go of a property that has been in the family for nearly 100 years. He was asking if it was fair for his brother to force the sale of property.
The New York Times ethicist, Randy Cohen, sided with the brother, rather than the writer, saying that he has a right to withdraw his interest in the property. That is also the law. Co-owners of real estate have a right to their interest and can force the sale in court if necessary.
This situation is not at all unusual and, unfortunately, can create a lot of hurt feelings. One owner has no interest in the property, while another has strong ties to it but can't afford to buy out the other owner or owners. What different family members want can depend on many circumstances, such as whether they live near the vacation house or across the country from it, whether they have another vacation home of their own, whether or not they need the money, and even whether they have fond childhood memories of spending summers at the house.
The question for owners of vacation homes in planning their estates is the vision they have for the property. Do they see the property as binding their family together for generations to come as they continue to vacation together? Or are they more concerned about the issue of equity in that some children are unlikely to ever use the property while others may use it heavily? There is no right or wrong answer, just a question of the parents' values and goals.
Two Possible Solutions
Two estate planning solutions are commonly used with regard to vacation homes. The first is to direct that the property be sold within a certain amount of time -- often a year -- after the surviving parent's death. Often, the children are given a right to purchase the property at a bit less than fair market value, called a 'right of first refusal.' If none of the children exercises this right by the deadline, the property is put on the market. This solution has the advantage of finality and equity. Each child gets his or her share and is not tied to the other children for years to come. It would have solved the problem for the man who wrote to The New York Times.
The second approach is to put the house in trust for the family. Usually one or two family members are named trustees to manage the property for the benefit of all children and grandchildren. They can assess appropriate charges for use to cover the cost of upkeep and repairs (or the parent can leave money in trust for this purpose). This preserves the house for future generations. It also avoids probate and sometimes can avoid a second probate if the property is in a state different from that of the owner's principal residence. An irrevocable trust can also protect the property if the parents require nursing home care and must apply for Medicaid coverage.
The trust also would have solved the problem for the man who wrote to The New York Times, though it may have displeased his brother. In short, there is no right or wrong answer. But a plan is almost always better than no plan. We can't guarantee that all heirs will be happy with whatever decision is made. But in most cases they will accept what their parents or grandparents decided to do with their property. And in terms of family harmony, it's often better that any anger be directed towards the parents who are no longer there than towards siblings who are still around.
To read Jan. 23, 2005, column in which this question appeared, click here. (Free registration required and the article will cost $2.95 to download.)