Articles

A vacation property can be one of the most valuable things you can pass down to your loved ones, from both a sentimental and financial standpoint. However, mixing money and family can be tricky. Without a well-thought-out strategy for the ownership transition, hard feelings and disputes could arise, and the vacation home could be used in ways you did not intend. Beyond family dynamics and legacy objectives, transferring a vacation property to the next generation also has legal and tax implications that need to be addressed in an estate plan.

Vacation Homes Are a Store of Memories—and Wealth

It is that time of year when you and your loved ones may be preparing to spend time on the beach or in the mountains at the family vacation home. Around 5 percent of all housing units in the United States are second homes. There was a more than 16 percent surge in new vacation home purchases during the pandemic.[1] From humble cabins and beach cottages to luxurious mountain estates and lake houses, vacation homes are owned by an estimated 4 out of 10 Americans.[2]

Many second homes are dual-purpose, serving as a family gathering spot as well as a revenue source. Sites like Airbnb and VRBO have made it easier to rent out property. In 2023, the US short-term rental market, comprising more than 785,000 individual hosts, 2.5 million available listings, and 207 million nights stayed, generated approximately $64 billion in revenue.[3]

Vacation Home Estate Planning Considerations

As you clean up your vacation home and prepare to welcome your children, grandchildren, and other family members for another season of memory-making moments, estate planning may be a distant thought—if it is even on your mind at all.

But ensuring that the home remains a place for the family to gather for generations to come requires addressing it in your estate plan now, while you still own and control it. Here are some points to consider as you balance finances, feelings, and fairness in your vacation home estate plan:

• Are you still spending time at the vacation home? This can affect whether you pass the home to your loved ones now or after you die. It is not an all-or-nothing proposition, though. You could establish what is called a life estate that allows you to transfer the vacation home at death but continue using it during your lifetime.
• Who is interested in the property? There might be interest among all your children in keeping the property, only one child who is genuinely interested in owning and using it, or nobody interested in it at all.
• Do you want to set limits on what can be done with the property? Think about whether the vacation home can be used as a rental, if family members should have the right to sell the vacation home or their interest in it to people outside the family, the conditions for one family member buying out another's interest, and other limits on what can and cannot be done there.
• How compatible are your loved ones? If everybody gets along and has similar income levels, you might not be concerned about their ability to equitably divide ownership rights and responsibilities. But disagreements could still arise over things like who is responsible for paying for upkeep, taxes, and insurance, and who can use the property—and when. And the more family members there are who have a right to use the home, the greater the potential for conflict.

These big picture estate planning issues for a vacation home can inform specific strategies such as the following about how to pass the property down:

• Selling the home to a family member
• Gifting the home to family during your lifetime
• Passing down the home to loved ones through the probate process via your will
• Transferring the property outside of probate, either while you are alive or after your death, with a trust or a transfer-on-death or pay-on-death deed (if your state recognizes them)
• Creating a limited liability company (LLC) or family limited partnership (FLP) to own the vacation home

Each of these strategies has a different set of pros and cons that you should further discuss with an estate planning lawyer.

Talk to a Lawyer About How Best to Keep a Vacation Home in the Family

Family can be complicated. Adding a treasured family vacation home to the mix only adds to the complications.

We recommend talking to your loved ones about the vacation property. Once you get answers to questions like who wants the vacation home, how much they might use it, and if they can take on ownership responsibilities, reach out to us to create a strategy that aligns with your personal circumstances and objectives.

[1] Theresa Landicho, 17 Second Home Statistics Every Investor Should Know in 2024, Fit Small Bus. (Feb. 13, 2024), https://fitsmallbusiness.com/second-home-statistics.

[2] Andrew Lisa, 40% of People Have Vacation Homes: Where You Can Find One for Your Budget, GoBankingRates (June 16, 2023), https://www.gobankingrates.com/investing/real-estate/where-to-find-vacation-home-in-your-budget.

[3] 2023 Short-Term Rental Statistics You Need to Know, AirDNA (Jan. 28, 2024), https://www.airdna.co/blog/2023-short-term-rental-statistics-key-numbers-to-know.

Although we may not always recognize it, financial decisions and tasks are a part of our everyday lives. They range from daily spending habits to more complex retirement planning.

You may take for granted that you are able to manage your finances. However, what if you become incapacitated (meaning that you lack the ability to handle your own affairs due to illness, injury, cognitive decline, or some other cause)? Someone else will have to manage your finances for you if you cannot.

If you have an updated estate plan that names a substitute decision-maker to act in your stead, you have control over who that someone is. Otherwise, the court will appoint a financial decision-maker, and it may not be who you would want—or who has your best interests in mind.

Guardianship or Conservatorship versus an Estate Plan

Two-thirds of US adults do not have an estate plan,[1] which effectively means that they lack an incapacity plan (a plan for how their affairs will be managed if they cannot do it for themselves).

You may have created a will and completed other estate planning tasks, such as purchasing life insurance and making beneficiary designations. However, you still need a documented, legally enforceable process and plan for determining who will manage your affairs if you become incapacitated.

To proactively grant the necessary powers to a financial decision-maker, consider a revocable living trust and a financial power of attorney.

• A revocable living trust allows you to serve as trustee of the trust (in charge of managing the money and property owned by the trust) while you are still able. You can also name a successor trustee to take over trust management if you pass away or become incapacitated. The trust agreement can specify who determines whether you are incapacitated and can also contain detailed instructions about how the successor trustee should manage the trust.

One of the main purposes and benefits of a revocable living trust is to avoid the court-supervised probate process, but it can also be used to help avoid a different form of court intervention: the appointment of a legal guardian or conservator (the term may vary by state), which is the person appointed by the court to make financial and other decisions for you.

• A financial power of attorney is another estate planning tool that can help avoid court intervention if incapacity strikes you. It gives one person (the agent or attorney-in-fact) the authority to act on behalf of another person (the principal) regarding their financial matters.

A financial power of attorney is highly flexible. It can include a statement describing how incapacity will be determined and who determines it; it can come into effect only when the principal's incapacitation is confirmed (in some states); it can specify the powers granted to the agent; and it can be limited or long-lasting in duration. Like a revocable living trust, a financial power of attorney helps eliminate the need for court-appointed guardianship or conservatorship.

Factors When Choosing a Financial Decision-Maker

When choosing a financial decision-maker, you should consider factors such as trustworthiness, financial knowledge, and the ability to handle responsibilities under pressure. The person selected should have a strong understanding of your values and priorities, be organized, and communicate effectively with other key parties, such as family members or advisors. Additionally, they should be available and willing to serve in this role, as it may require significant time and effort, particularly during complex situations.

If nobody in your immediate circle of friends and family seems like a good candidate, a professional, such as an attorney or financial advisor, can be chosen. However, many professionals are hesitant about serving in the role of an agent under a durable power of attorney, so you may want to consider other professionals, such as professional caregivers or fiduciaries. A professional trustee or agent is different from a professional guardian or conservator because it is a person of your choosing rather than the court's.

The bottom line is that estate planning lets you manage incapacity in advance, in the manner that is best for you, your finances, and your family. You are free to name whomever you want to serve as a successor trustee or an agent under your financial power of attorney and to provide whatever instructions you want for them in your estate plan.

You may never need to rely on an incapacity plan. However, having the right people and provisions in place gives you added protection and peace of mind just in case something happens and you lose financial capacity. For guidance on this front, call us today at 336-373-9877 to set up an appointment.

[1] Rachel Lustbader, 2024 Wills and Estate Planning Study, Caring.com (July 30, 2024), https://www.caring.com/caregivers/estate-planning/wills-survey.

What is Probate?

Probate is the court-supervised process of either (a) carrying out the instructions laid out in the deceased's will or (b) applying state law to distribute a deceased's accounts and property to their family members if the deceased did not have a will. The main purpose of the probate process is to distribute the deceased's money and property in accordance with the will or state law. Not all wills, and not all accounts and property, need to go through probate court. And just because a will is filed with the probate court does not mean a probate needs to be opened. But whether or not probate is necessary, most state laws require that a will be filed when the creator of the will (testator) passes away.

Understanding Probate, Wills, and Estates

Estates, wills, and probate are distinct, yet interrelated, estate planning concepts.

• An estate consists of everything that a person owns—including their personal possessions, real estate, financial accounts, and insurance policies. Virtually everyone leaves an estate when they die.
• A will is the legally valid written instructions that a person creates describing how they want their money and property distributed upon their death. Wills are highly recommended, but there is no legal requirement to have one. To make a will legally valid, it must be properly executed in accordance with state law. Executing a will involves signing the document in front of witnesses. Additionally, at the time of signing, the creator must have capacity (i.e., be of sound mind).
• Probate is the legal process that formally distributes the accounts and property that are in the decedent's sole name, do not have a beneficiary designated, and have not been placed into a living trust prior to the decedent's death (sometimes referred to as probate assets). During probate, a decedent's probate assets are identified and gathered, their debts are paid, and the probate assets are distributed to beneficiaries named in the will or their heirs as determined by state statute if there was no will.

Probate with a Will

Assuming that a decedent does have a will, here is how probate typically proceeds:

• The person nominated in the will to act as executor (sometimes called the personal representative) files a copy of the death certificate, the original will, and any required documents or pleadings with the probate court. If the person nominated in the will does not file these documents with the court, state statute will determine who else has priority to make such filings (possibly another family member, an attorney, or even a creditor of the decedent).
• The court examines the will and other documents filed to confirm their validity and gives the named executor the legal authority to carry out the decedent's wishes, as specified in their will. This legal authority is conferred in a court-issued document called letters of authority, letters testamentary, letters of administration, or another similar name.
• The individual appointed as executor inventories and values the decedent's estate assets and identifies any outstanding debts of the estate, such as loans and credit card debt.
• Once estate debts are paid, the remaining accounts and property are distributed to named beneficiaries and the estate is closed, ending the probate process.

The length of a probate can vary depending on many factors, including the size of the estate, state laws, and whether the will is deemed invalid or contested.

Avoiding Probate

In some cases, avoiding probate altogether can cut down on the amount of time it takes to wind up a deceased person's affairs. There are also other reasons to avoid probate, such as keeping probate filings out of the public record and saving money on court costs and filing fees.

Beneficiary designations, joint ownership, trusts, and affidavits are common ways to avoid probate, but only if they are done correctly. Here are some examples of these probate-avoidance tools in action:

• Pensions, retirement accounts like 401(k)s, and other accounts that allow for designated beneficiaries may not need to be probated. Transfer-on-death (TOD) and payable-on-death (POD) accounts are generally treated the same as accounts that have a beneficiary designation. However, you should never name a person who receives Medicaid or SSI, or a minor child, as a beneficiary or TOD/POD designee.
• Accounts and property that are jointly owned and have a right of survivorship can bypass probate.
• Accounts or property held in a trust may also bypass probate. But trusts are not without administrative and cost burdens. Also, if the deceased forgot to transfer ownership of an account or piece of property to the trust, a pour-over will may be needed to transfer those accounts and property to the trust through the probate process upon the trustmaker's death.
• Some states have laws that allow probate to be skipped if the value of an estate is below a specified value and does not contain any real estate (often referred to as a small-estate exception). The threshold value for qualifying for this exception varies by state. For example, probate can be skipped in Arizona, Texas, and Florida for estates worth less than $75,000. In California, the threshold is $184,500; in New York, it is $30,000.

Filing a Will versus Opening Probate

Filing a will with the probate court and opening probate are separate actions. A will can be filed whether or not probate is needed. Remember that probate is needed only under certain circumstances, such as when the decedent passed away while owning probate assets. Further, not only can a will be filed with the court when a probate is not needed, some state laws actually require it. Some state laws require the person who has possession of a decedent's will to file it with the court within a reasonable time or a specified time after the date of the decedent's death. The consequences for failing to file a will vary by state but may include being held in contempt of court or payment of fines. Additionally, the person in possession of a will might also be subject to litigation by heirs who stand to benefit from the estate under the terms of the will. The latter also applies if the will-holder files a will but does not file for probate. Failing to file for probate (when probate is necessary) prevents inheritances from being properly distributed.

These legal consequences are usually imposed only on a will-holder who willfully refuses to file a will. If someone you love has passed away and you have their will in your possession, we recommend that you work with an experienced probate attorney who can assist you in determining whether a probate must be opened and whether the will needs to be filed.

Avoid Probate Issues When Drafting a Will

Probate avoidance may be one of your goals when creating an estate plan. You should also consider implementing tools in your estate plan to minimize issues that may arise if your estate does require probate.

Your will may have been written years ago and might not reflect current circumstances. You could have acquired significant new accounts or property, experienced a birth or death in the family, left instructions that are vague or generic, or chosen an executor who is no longer fit to serve. An outdated or unclear will can spell trouble when it is time to probate your estate, making it important to identify—and address—issues that could lead to problems, including will contests and disputes.

It is recommended that you update and review your estate plan every three to five years or whenever there is a significant life change or a change in federal or state law. You cannot be too careful when stating your final wishes. For help drafting an airtight will that avoids possible complications, please contact us.

Backup Plans Are Loving Too: Why You Need Contingent Agents and Guardians

Progressive Insurance recently rolled out a series of commercials featuring “backup” quarterbacks stepping in to handle everyday challenges, such as ordering food, giving advice, and even parking a trailer. After the “backup” salvages the situation, each commercial ends with the same line: “If only there were backups in real life.”

The ads are designed to emphasize how a backup can provide peace of mind when the unexpected occurs, as it often does, in both football and life. Progressive frames the point simply: “It’s always a good idea to have a backup plan.”

The humor hinges on the premise’s absurdity. In most areas of life, a person cannot summon a backup to act on their behalf during a deeply personal moment and expect that substitute to seamlessly complete the task.

Estate planning represents a notable exception. Real-life backups are contingent decision-makers designated in advance to step in if a primary decision-maker cannot serve. These contingents function much like backup quarterbacks: prepared to act quickly, often under pressure, and sometimes when the stakes are high.

An estate plan that names only primary decision-makers may appear complete on paper. Without contingents, however, the plan lacks the depth needed to remain effective when circumstances change, much like a football team without a backup quarterback.

Backups Prevent Chaos
When a team has no backup quarterback, it risks losing its entire passing game the moment the starter goes down. In desperation, coaches may be forced to put a nonquarterback under center to keep the game moving, with predictably disastrous results.

After a high-profile game exposed this exact problem, the National Football League changed its rules,[1] adopting an “emergency quarterback” policy to ensure that, even in extreme circumstances, a team would not be left without an on-field quarterback.

The logic is structural rather than sentimental: the quarterback is a control point for the entire strategy, and the system quickly falls apart when no prepared backup exists to take over.

The same dynamic exists in estate planning. When a plan relies on a single decision-maker with no designated contingency, it creates a fragile structure—one illness, conflict, relocation, or instance of unavailability away from confusion, delay, or court involvement.

Contingents provide stabilization and strategic depth. They allow your estate plan to keep functioning even when life goes off script.

Fielding the Right Team in an Estate Plan
Backups are not expected to completely fill the starter’s shoes. If they could, they would be starting. However, they are expected to be part of the game plan so that, if they are needed, the drop-off is manageable and the system can continue to operate.

That is an excellent way to think about contingents in an estate plan. Their role is not perfection but continuity.

When backup decision-makers are not built in, all bets are off. Decisions stall. Authority becomes unclear. Courts or third parties may be forced to step in. And unlike football, where the fallout affects both players and fans, the real-world consequences land on family members, often during moments of stress, grief, or medical crisis.

Just as damaging as having no backup is having the wrong one. Naming someone who is unavailable, unprepared, or no longer appropriate can be the equivalent of signing a player off the street and hoping for the best. The position may be filled, but the drop-off is glaring, and the system will not function as intended.

Common Contingent Oversights and the Problems They Cause
Contingents, like backup quarterbacks, are best viewed as necessary additions to your decision-making team. Whether on the field or in real life, things rarely go exactly as planned. Not having the right backups in place can cause an otherwise well-drafted estate plan to quickly break down, sometimes at the worst possible moment.

Financial Power of Attorney

●        Only one agent has been named, with no contingent agent.

●        A contingent agent was named years ago and may no longer be an appropriate choice.

●        Coagents are named without clear instructions on authority (for example, whether they must act jointly or may act independently, and how disagreements are to be resolved).

Result: Financial decisions stall, accounts freeze, and families may be forced to go to court.

Healthcare Agent

●        Only one health care agent has been named, with no alternate.

●        The named agent may be unavailable (out of state, difficult to reach, or unable to respond quickly during a medical event).

●        The agent’s current views may no longer align with the client’s wishes (or the client’s wishes have evolved and have not been clearly communicated).

Result: Treatment decisions may be delayed, authority can become unclear, and family conflict often escalates during medical crises.

Executor or Personal Representative

●        No alternate executor has been named.

●        The named executor is unwilling or unable to serve.

●        The named executor lacks capacity or lives far away, limiting availability for time-sensitive tasks.

Result: Probate is delayed, costs increase, and court involvement becomes more likely at a sensitive time.

Guardians for Minor Children

●        A guardian has been named for one child but not for others.

●        No backup guardian has been named.

●        The named guardian’s circumstances have materially changed (health, location, family responsibilities, or financial stability).

Result: Courts must decide custody and identify backup choices without knowing the parents’ wishes.

Across all these roles, the pattern is the same. Change was unanticipated, and the plan failed as a result. Depth was never built into the system. Or if it was, it was the wrong kind of depth. The listed backup was not read into the game plan or in “playing shape.” They had not had sufficient practice to be game-ready.

Backups Are a Sign of Readiness
Nobody would accuse a team with a solid backup quarterback of being pessimistic or overly worrisome. Backups are standard procedure because the position carries high stakes, and the consequences of being unprepared are immediate.

Estate plans work the same way. Naming backups (successor trustees, alternate personal representatives, backup agents under powers of attorney, and contingent guardians) is not “expecting the worst.” It is smart redundancy: an added layer of protection that helps your plan hold up when life does not cooperate. And, just as with a team’s lineup order, those choices should be revisited and updated during regular plan reviews.

Teams do not hesitate to replace a backup when the fit is wrong for the system or the locker room, and you should not hesitate either. Sometimes the person you picked years ago has moved, become unavailable, changed in capacity, or is simply not the best match for what your family needs today.

In real life, just as in football, you sometimes need someone ready to step in when life does not go according to plan.

However you look at it, your backups are every bit as important as the starters in your estate plan and require a specific skill set—and preparation—to succeed when they are called.

Do you need to name backups or help choosing the right contingents? We are here to assist you in doing just that!

[1] NFL emergency third-quarterback rule: Questions and answers, NFL (Sept. 4, 2023), https://www.nfl.com/news/nfl-emergency-third-quarterback-rule-questions-and-answers.