The idea of a family vacation home or retreat is appealing to many families, especially as a means to bring generations together and maintain a family identity. To quote Barbara Bush, “I think togetherness is a very important ingredient to family life.” Many of our clients treasure their retreat and view it as a place their children and grandchildren will enjoy for many years even after they themselves have passed away.
However, we have all heard of situations where too much togetherness causes unfortunate discord and heartache. In our professional experience, the ones that end badly are the ones with little or no planning for how the retreat will be managed and shared after the demise of the senior generation. Depending on the planning, the family retreat serves as a magnet that either pulls the family together, or becomes the family battleground.
Families who are proactive and develop a plan for shared ownership and use are the most likely to achieve their objectives. In order to transfer shared ownership and enjoyment to the next generation effectively, the seniors will need to implement a mechanism to fund expenses, manage the property, resolve conflicts and facilitate maintenance. It is incumbent upon the senior generation to provide the blueprint to govern the family retreat, usually via a management agreement that will survive the seniors’ deaths.
Our preferred strategy is to convey the vacation home into a limited liability company (“LLC”) owned by husband and wife. After their deaths, the LLC is owned by the adult children, but its management agreement (which can be amended by unanimous agreement of the children) addresses some or all of the following:
- a schedule for use of the home, especially holiday use;
- procedures to handle maintenance, repairs, improvements;
- annual dues or usage fees, or other funding mechanism;
- under what circumstances family members may withdraw, and what payment they will receive for forfeiting their interest; and
- how ownership rights may be transferred and to whom.
Farner & Perrin, L.L.P., is pleased when we can give clients the peace of mind that comes from planning for the family retreat for years to come. Let us know if we can work with you in this manner.