If You Own a Second Home, Make Sure You Plan for It in Your Estate Plan Now
More than seven million Americans have second (or vacation) homes, and many are now concerned that, as a result of the coronavirus bailouts, they could face an increase in estate taxes in the next few years. For this reason, planning for these assets is a very important part of your estate planning process, and not necessarily one that everyone realizes is important, as those approaching estate planning sometimes only think of planning for their main residence.
These second homes will also likely become more and more important to many because the markets have changed significantly for investing assets. Given that they have also diminished significantly, investment assets may very well be used for living expenses instead of being passed onto future generations. As a result, second homes may, instead, become gift assets for future generations, where once investments were. Still, those who wish to pass these homes on to their loved ones should act now and address these properties in their estate plans before the relevant temporary exemptions decline.
The Irrevocable Dynasty Trust
One such option is what is known as an irrevocable dynasty trust, where the spouse is the beneficiary and the descendants are the remainder beneficiaries. Fortunately, Florida allows for self-settled domestic asset protection trusts, which are protected from creditors.
Still, a decision will need to be made as to whether there will be an institutional trustee or a general administrative trustee responsible for decisions such as the rules and regulations surrounding the personal use of the property, investments, and others. The trust should also include an express provision that addresses any rules or regulations that should be set in stone for the trust and outside of the trustee’s control, such as allowing the beneficiaries to use the property without having to pay rent, for example.
Limited Liability Companies
A limited liability company (LLC) is also very helpful for a number of reasons, such as insulating the trust from any liabilities associated with owning a vacation home. LLCs also have operating agreements, which can dictate various rules and regulations as to how the property can be used, when, by whom, etc., such as on certain holidays, who is responsible for maintenance, improvements, repairs, etc. That being said, an occupancy agreement can also establish rules and regulations between the property’s occupant and the trust in terms of property improvement, maintenance, payments, repair obligations of the home, etc.
Keep in mind that appointing a manager for the LLC can also sometimes make it easier to address the many administrative tasks that need to be done regularly, such as paying bills.
Contact Our Florida Estate Planning Attorneys With Any Questions
With proper planning, second homes can provide a generation-skipping transfer tax exemption and the opportunity to pass on a legacy to future generations. If you have any questions about estate planning in Florida, including asset protection and gift planning, contact our experienced Orlando estate planning attorneys at Gierach and Gierach, P.A. today to set up a free consultation. We are working through this time to provide clients with free, safe consultations so that they can move forward with their estate planning needs.