A common question we receive from clients is how to deal with vacation properties when they have more than one child. What is the best way to approach this to ensure all children are treated equally?
Most importantly, parents should speak to each of their children to ensure that they are all on the same page with respect to which child would like to keep the vacation property. Otherwise, the decision as to how to deal with the vacation property may result in a dispute amongst the family members.
If the children agree that they would like the property to pass to one child, there are a few strategies that parents may implement to ensure their vacation property passes to such child, while ensuring the other children receive assets of equivalent value:
- Parents can leave their estate in equal portions to their children, but ensure that there is enough liquidity so that one child can take the vacation property as their portion of the estate.
- If there is not enough liquidity for one child to take the vacation property as their portion of the estate, parents may consider purchasing insurance in an amount that is a multiple of the shortfall, so that each child is entitled to the amount of the shortfall upon the second spouse’s death, and then there will be enough liquidity for one child to purchase the vacation property.
Another option is that parents may gift the vacation property to all of their children in their will, and make each of the children a joint tenant when the second spouse passes away. If they do decide to do this, then a co-ownership arrangement should be agreed upon by each of the children, detailing who will be responsible for performing repairs and maintenance, when each of the children will be able to use the property, etc. However, owing a property in co-ownership can often lead to disputes, and can become an issue in the event of a subsequent separation or divorce of a sibling, if a former spouse or common law partner makes a claim against an owner.
Whichever of the above options are chosen, it is very important that parents and children have open lines of communication with each other to ensure that there is no misunderstanding about which of them would like to keep the vacation property, and whether any of her siblings would like to continue to visit the property.
This article is a general discussion of certain tax and accounting matters and should not be relied upon as tax or accounting advice. If you require tax or accounting advice, we would be pleased to discuss the issues in this article with you.
