YOU PAID THIS YEAR'S TAX BILL on the summer cabin, but your sister fixed the roof—now who owes whom? And your brother wants dibs on Fourth of July weekend, even though that's always been your slot. Suddenly, that place where your family went to unwind for so many years is causing a lot of anxiety.
When siblings inherit the family vacation home, the shared responsibility can be tricky to navigate. "Over the years, so many special moments happen in these places," notes Michael Liersch, head of Behavioral Finance and Goals-Based Consulting at Bank of America Merrill Lynch. "But to keep creating memories for the coming generations—especially as families age, grow and expand—it takes careful planning and clear-cut rules."
Rules—on vacation? As sensible and straightforward as that advice might seem, it isn't always easy to follow. But, notes Liersch, "a place of anxiety and uncertainty isn't fun, and that's what having no rules creates." Here are five tactics that can help you keep the vacation home you share with family members humming with joy.
How do you determine who gets the house on Fourth of July weekend? Is it first-come, first-served, or the one who paid the taxes?
Write it down. To create a shared sense of ownership and responsibility, consider preparing a formal document that lays out your extended family's plan for the vacation home. According to Wendy Goffe, a Seattle-based estate attorney and expert on family vacation homes, the document should begin with the basics: why the family owns the home and what each person loves about it. For example, do you see it as a place of solitude, contemplation and intimate gatherings for immediate family members, or as a setting for frequent entertaining?
Anticipate the big stuff. The plan should deal clearly with specific questions that could cause conflict. For example, how do you determine who gets the house on the Fourth? Is it first-come, first-served, or the one who fixed the roof or the one who paid the taxes? The answers should be built into your plan.
Scheduling can be one of the more contentious issues. Many families solve it by creating rotating time slots, particularly for second homes where one time of year is most desirable. But this means more than just filling out a calendar. What happens when one family member's weekend is washed out by rain and she wants a do-over? Such contingencies must be anticipated and planned for as well.
Your plan should also set rules for the upkeep of the property, including the opening and closing of the house each season as well as how repairs are decided upon and handled. Include a statement on how costs will be divvied up. Many families contribute to a pool to be used for this purpose.
You can be sure that there will be legal issues too. Goffe recommends that one person be designated to handle them. Your plan should identify who that person will be and spell out how he or she will be compensated.
Don't let little things become big things. Your house rules should cover even seemingly petty details such as vacuuming the floors and taking out the garbage. "It's not just financial matters that can lead to family conflicts over a jointly owned vacation home. Often, it's little things like who forgot to clean the refrigerator," says Jeralyn Seiling, a director of Merrill Lynch's Wealth Structuring Group. Establishing clear guidelines on such routine matters as food, cleanliness and the number of guests allowed for sleepovers will go a long way toward keeping the family peace.
Give family members a way out. Be sure to include an opt-out plan for family members who may decide at some point that they aren't interested in being part of the arrangement any longer. Perhaps they've experienced a financial upset or life change that requires them to sell their position in the house, or they simply have new priorities. "Locking everyone into a fixed agreement can lead to resentment when someone has a reversal of fortune and needs ready access to cash," says Seiling.
The details of the exit strategy will vary according to each family's financial situation. "Often, when one person wants out, other family members will have an automatic right of first refusal to buy his or her share," she notes. To prevent remaining family members from immediately facing a steep payout, the rules may stipulate that payments to the departing person be made in installments over an agreed-upon time period.
Make it easy for everyone to play by the rules. After you've written the rule book for your vacation home, make sure it stays on everyone's radar. Liersch advises creating an online calendar that members can easily consult. In addition to dates, the calendar can help keep track of scheduled maintenance and other expenses. "This helps you create accountability for things that are going right and wrong," says Liersch. "If one person is doing an outsized portion of the work, others can see that and step in."
One final rule: Don't forget that rules are meant to be broken. When one of your house rules is ignored, it helps to remember that the rule breaker is someone you love.
3 Questions to Ask Your Advisor
- What should be included in an opt-out plan for the property I share?
- Can I afford to maintain the family property on my own, if my siblings sell to me?
- Should I keep a designated fund for maintaining the house, and if so, in what form?
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