Owners of a second home (such as a lake cabin, winter home or beach house) or an investment property (rental house) often want to preserve it for the use and benefit of future generations of their family. The reason for such preservation is usually either sentimental (memories of family vacations) or financial (investment and income).
A number of obstacles exist to preserving a vacation property for the use of future generations, including the preferences of the owner's heirs, the life circumstances of the owner's heirs, the need to qualify for Medicaid, the expense of maintaining the property and family disputes over the use and management of the property. Any of the obstacles can result in the property being sold and proceeds distributed.
A number of ownership alternatives exist to provide asset protection for a vacation home or investment property. The best choice will depend on the owner's concerns and the planned use of the property.
The simplest way to transfer ownership of a secondary home to the next generation is to record a deed naming the current owners and the next generation of family members as joint tenants with rights of survivorship. The major advantages of the type of ownership are that it's inexpensive to establish and avoids probate on the death of the parents.
The secondary home could be owned by the parents' revocable living trust with the children as beneficiaries with one or more of the children serving as successor trustee. The property would not be subject to probate at the death of the parents or the children. The trust can direct that the trustee retains the secondary home for an extended period, making it available to multiple generations of family members. The secondary home would not be subject to the claims of the beneficiaries' creditors or subject to division in a divorce since the beneficiaries are not current owners.
If the intent is to hold the property as an investment and rent it out, instead of being directly used by family, a limited liability company may be the best ownership choice. This choice would also be useful for a large family if the goal is to hold the property for an extended period. If the investment property home is used for short-term rentals, the LLC structure will protect the member's personal assets from business liabilities.
If the current owner's primary concern regarding the vacation home is to protect it from Medicaid spend down or to provide asset protection, an irrevocable trust is likely the best choice. A property transferred to an irrevocable trust would not be a countable asset for Medicaid purposes five years after the transfer. An asset owned by an irrevocable trust is also not subject to the liabilities or divorce claims of a beneficiary.
