Date: Aug 27 2019
Every year at this time I get questions from our members about shared family vacation homes. "How are other families scheduling usage?" "How are expenses shared?" "How should we handle family members that can no longer support their ownership expenses?" And the list goes on and on.
Many wealthy families see shared property as a good way of encouraging family unity and preserving their legacy, and tax laws certainly make gifting real estate advantageous. But sharing property among multiple family members is often a delicate balancing act that requires careful planning and a shared commitment among everyone involved.
In talking to FOX members over the years, I’ve come across seven key lessons that help minimize conflict over a shared vacation home or compound and help families better realize the promise of encouraging family unity for generations.
- Have a formal agreement. You’ll want to set ground rules and make sure that everyone understands and agrees to them. Include provisions for negotiating usage, expenses and scheduling.
- Include the next generation. Give younger family members a seat at the table in discussions about ownership of the shared family property before you see an estate planning attorney. Don’t force them into a sharing agreement unless they agree to it.
- Scheduling can be a nightmare. Be prepared for conflicts and be fair. Determine whether you’ll schedule usage based on seniority, investment level, ownership, on a rotation basis or some other mutually agreed to arrangement.
- Share expenses according to usage. Track each party’s time spent on the property and avoid forcing those who rarely use it to pay more than their share. Some families have used funding mechanisms, such as life insurance or creating an endowment to fund expenses for several generations.
- Expect the unexpected. Life can take different turns and the property may no longer be a blessing. Be prepared for contingencies. Have buy-out provisions in the agreement.
- Set realistic expectations. As the family grows, lifestyles and financial resources vary considerably. Sentimental feelings and traditions that family members have to the property may lead to “guilty” feelings when their lifestyle and financial resources no longer support their participation. Have buy out provisions in the agreement and let family members know that it is “okay” not to be an owner of the property.
- Reinvent on a regular basis. It’s nearly impossible to predict all the issues that might arise in subsequent generations. Keeping a vacation home in the family for generations requires a lot of communication, strong governance and reinvention on a regular basis.
Perhaps most importantly, use the time you spend on the property to enjoy each other’s company and build lasting memories.