The Do’s and Don’ts of passing down vacation property to family

All Things Financial

Family vacation home

Volume 16 No. 7, August 2010
By Charles P. Jones, CFP®

A family vacation home is a place of fun, memories and refuge for generations of friends and relatives. But when the matriarch or patriarch who bought the home dies, it’s not uncommon for the same family members to go to war over visitation rights and ownership of the property, which can be worth a significant sum.

This is why it’s important to include any vacation property as a part of the buyer’s estate planning. According to the National Association of Realtors’ 2009 analysis based on U.S. Census data, there are 7.9 million vacation homes and 41.1 million investment units in the United States, compared with 75 million owner-occupied homes.

Such significant property can mean significant discord when there’s a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That’s why it’s important for experts in financial planning, tax and estate issues to be brought into what might seem as a fairly minor investment issue.

Some suggestions:

Do a market analysis: How valuable is the family vacation home, anyway? It might make sense before you talk to any of your heirs to appraise the property and launch a competitive marketing analysis to see what other homes in the immediate area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it’s fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at which time they’ll have full control over the choices that get made.

Discuss scenarios with your team of experts: Again, it’s important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you’ll have more to discuss when you finally bring it up with your heirs.

Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. Eventually that can result in a more formal meeting when it’s time to start making decisions. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is one emotional investment issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.

Start developing the plan: Once you reach consensus with all relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they’re alive so surviving heirs don’t have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens. It’s good to get advice on what a sensible buyout price is ahead of time. Because it won’t include traditional selling costs, family members might be able to buy the property at a premium.

Consider different ownership structures: Homes that older family members want to keep in the family might consider a limited liability company (LLC) as an ownership vehicle for the vacation home. LLCs can offer lawsuit protection from creditors and users, they’ll keep the property in the family and they will help the owner set up a structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted.

Have some fun: Don’t let the process of handing down the property or discussing future ownership detract from the property’s original purpose – to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones, a local member of FPA.

The first steps in planning home-based care for an elderly relative

No one wants to see someone they love in a nursing home. That’s why many older Americans and their families would opt for home-based care whether it’s for a temporary illness or disability, or end-of-life.

Yet the best time to plan for such an event is exactly at the time when no one wants to – when everyone’s healthy and in no mood to think of being sick.

Money is a big part of this decision. Financial planning professionals can take a big-picture look at all the money and structural factors that go into any long-term care decision – the retirement picture, tax situation and estate structure the elderly relative has already made or needs to make. But the money planning process needs to be concurrent with a process to determine what role family members will play.

Here are some ways to begin the process, whether it’s for you or an aging relative.

Talk to family: Even before you start addressing financial concerns, it’s important to understand how individual family members feel about the long-term care issues of an aging relative. Some family members will want to pitch in to care for them personally if they’re nearby; others may want to but fear the disruption of their careers and their own family life. And keep in mind that the perspectives stated in a private conversation or family meeting might change over time. Family members also need to work out how siblings, cousins and others will collaborate and give each other respite, because caregiving is an exhausting job.

Start by evaluating the senior’s finances: If you have time and a good rapport with the senior, you have a valuable opportunity to settle a lot of important details. If there’s not a pending emergency, it’s a good idea to schedule a family meeting between you, your spouse and the elderly relative to make sure you understand what assets they have and how they want those assets applied to their long-term care. And even if an elderly relative is older but in relatively good health, it might make sense to check the cost of long term care insurance as a backstop to their savings. The premiums will definitely cost more – sometimes considerably more – than the average 50-year-old would pay, but depending on the relative’s situation, such a move might make sense.

Make sure key documents are in place: It’s also important to ensure that the elderly relative has critical documents in place such as a current will, relevant legal and health powers of attorney and any written instructions relevant to their care, their funeral wishes and other property issues. All that information should be stored in an agreed-upon place that all key decision-makers can get to easily.

Start researching care options now: For a good overview website, check out, the website of the National Family Caregivers Association. Meanwhile, in virtually all communities, there are guides to various community programs that ramp up services as the relative needs them. Your local department on aging will have resources in at least these four critical areas related to care giving:

  • Home care services: Guides to find certified professionals who can help with medical issues or personal care.
  • Meals and transportation: At the very least, meals-on-wheels can help assure proper nutrition for individuals who need more help with that. Also, many communities offer door-to-door transportation to medical and community facilities.
  • Adult day care: Similar to child day care, community centers offer a variety of programs for seniors to take part in during the day when caregivers need respite.
  • Respite care: These programs bring trained caregivers into the home for either a few hours or a few days, allowing the full-time caregivers to get away for as little as a hair appointment or a weekend off.

Make sure the care option fits the stage of health as well as the budget: The options immediately above suggest there are different stages to home-based care. Home health aides obviously allow a relative to stay in the home and have company when traveling outside, but adult day care can be a cheaper option. Also, part-time caretakers can handle key tasks and supervision as needed – keep in mind that responsible college students need money more than ever and can help with grocery shopping, cleaning, meal preparation and supervision on health issues that medical personnel don’t always need to be present for.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones , a local member of FPA.

Coverage Corner: Medicare Change

By Stephanie McGanty

Health insurance for people in the United States, age 65 and older, is what we know as Medicare. Medicare and Medicare Supplement plans have been my focus for the last two years, prior to joining the Chuck Jones Team this past June. More changes have taken place within Medicare in the last two years than the prior forty-three years combined.

I wanted to share a few of the things I have learned with you. These changes have dramatically affected many seniors… and not in a positive way. As of June 2010 the Medigap plans you are allowed to buy have changed, as follows:

  • Medicare has taken away the availability of plans E, H, I and J.
  • Medicare has added plans M and N.

The major reason this was done was that the earlier (now unavailable) plans had extra coverage such as additional ‘at home care.’ Another big change seniors should be aware of is that this year due to a decision made by Congress and the new Healthcare Reform, Medicare Advantage plans had their reimbursements cut by 4.5%. As an example, premiums on several Advantage plans increased from $126 per month to $186 per month. A $60 increase translates to a 33% increase in out-of-pocket expenses for the premium alone… quite a jump for those on a fixed income! As far as prescription drug plans go, those people who hit the ‘donut hole’ this year, will get a check from Social Security for $250 within a month or so after hitting the donut hole. All Part D prescription drug plans have the donut hole. The donut hole or ‘drug coverage gap’ begins once your prescription drug cost has reached $2,830. After this point, the senior is responsible for 100% of their drug cost until they reach catastrophic coverage of $4,550. Most people do not reach catastrophic coverage before the end of the year. Once a new year has started, their drug total starts at $0 again.

If you or a family member is on Medicare, or you will become eligible for Medicare in the coming year, please give me a call. I would be happy to utilize my expertise and experience on your behalf and analyze all the variables to determine the best possible plan for you &/or your loved ones. Please call (503) 291-1313 to set up your appointment. I will take the time to thoroughly explain the different plans and to make suggestions on which plans are best suited to your particular situation and help you to sign up, if you wish.

Statistically Speaking

  • 9.3… Trillions of dollars in U.S. retirement accounts in 2009 (about half in defined contribution plans), up from $7.9 trillion in 2008. (Spectrum)
  • 9… Number of states that raised taxes on the wealthy in 2009. Others are expected to follow suit this year as state budget gaps widen. (Investment News)
  • 4th… Place in history of recoveries after 16 significant market turndowns that the upswing in March 2009 takes, at 68.3 percent after 280 market days. Which downturns beat it after this same recovery period? July 1932, at 151.3 percent; August 1896, at 90.7 percent; and December 1914, at 77.5 percent. (Advice Perspectives)
  • 61… Percentage of Americans age 18-34 who believe the best stock investment opportunities over the next 10 years will be outside the United States, compared to 38 percent of those ages 65 or older. (Franklin Templeton)
  • 42… Percentage of large employers that have 401(k) plans with automatic enrollment; 28 percent have an automatic escalation feature. (AARP)
  • Less than 1… Percentage of worldwide households with $1 million or more in wealth. This equates to 11.2 million households, 4.7 million of which are located in the United States. (Boston Consulting Group)

Source: Journal of Financial Planning, August 2010, p.12 & 16.

Chuck’s Comment

We hope that you and your families are having an enjoyable summer.

I just wanted to remind you that certain allowances and exceptions are/were only in effect for 2010. These involve Roth conversions and estate taxes. Other changes have come into play regarding Medicare and the age at which you can retire with the full Social Security benefit, for those born after 1960.

Do you know if any of these changes affect you or any of your friends or family members? We will be happy to review each individual situation for you or someone you care about. Please call me at (503) 291-1313 to set up an appointment, or send me a note using our website Contact Form. Your peace of mind is important to us.

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