Incorporating your vacation home into your estate plan ensures it remains a cherished family haven, creating countless more joyful memories for generations to come.
Your vacation home is filled with hundreds, if not thousands, of treasured memories. You have watched your children and or other young family members grow and explore, you have shared special meals and traditions with your loved ones, and it is a welcomed respite from the stresses of daily life. By including your vacation home in the estate planning process, you can guarantee that your vacation home will stay in the family, providing many more years of fantastic and memorable experiences for your loved ones.
Possible Tax Implications for Beneficiaries who Inherit Vacation Properties in Manasquan, NJ
The amount of tax to be paid depends on several factors. First, as of January 1, 2018, New Jersey no longer charges an estate tax. In some cases, there is an inheritance tax when the decedent’s property passes to a beneficiary. The amount of tax is decided based on several factors, such as how the beneficiary is related to the decedent, the value of all assets and debts the decedent possessed, the kinds of assets, and whether the decedent resided in another state. Federal estate taxes may be owed as well.
Assets received by beneficiaries who are spouses, domestic partners, children, grandchildren, great-grandchildren, stepchildren, parents, or grandparents of the decedent are tax-exempt. Inheritances given to charitable or religious organizations or schools are also tax-exempt. Siblings and brothers or sisters-in-law are eligible for tax-exempt status of up to $25,000. The tax rate varies from 11% to 14%. Amounts over $1,700,000 are taxed at a rate of 16%. Relatives such as aunts, uncles, nieces, or nephews are taxed at a rate of 15% up to a benefit of $700,000 and a rate of 16% thereafter.
Taxes must be paid within 8 months past the date of death. If the decedent was no longer a resident of New Jersey, taxes must be filed for tangible property (cars, homes, jewelry, personal effects, etc.) located within the state. Intangible property such as stocks, bank accounts, or other financial assets are not taxed. Beneficiaries of resident decedents must file taxes for the transfer of tangible or intangible property.
Legal Strategies for Including a Vacation Home in Your Estate Plan in Belmar, NJ
Using a Trust to Protect Your Vacation Home
A trust is a popular way to transfer asset ownership to beneficiaries. There are several benefits to using a trust. First, you can control and use your assets as you please while alive. After death, the trustee manages the assets within the trust and distributes them according to the instructions given for the trust. Also, assets in a trust are not subject to the probate process, saving time and money.
Qualified Personal Residence Trusts for Second Homes
A Qualified Personal Residence Trust allows the grantor to use or rent their property for a determined amount of time, rather than upon death, while transferring ownership to the beneficiary in an irrevocable trust. The advantages are that the grantor decides how long they want to use the property before it is handed over to the beneficiary, and there are tax benefits.
Transfer-on-Death Grants for Vacation Properties
Some leave their property directly to the beneficiary using a transfer-on-death grant. This can name one beneficiary or several, and to avoid disagreements amongst them, a “Use and Maintenance” agreement can be drafted to provide how the property should be used and maintained. This process avoids probate.
Vacation Home Ownership through a Limited Liability Company (LLC)
Your vacation home can also be owned by a limited liability company (LLC) you and your attorney create. The operating agreement can designate the number of interest shares if the location is used as a rental property and how the property is to be maintained. This changes the tax structure applied to the asset because it is a small business rather than an individual.
Joint Ownership of Family Vacation Homes at the Jersey Shore
Joint ownership of the property is another possibility. Spouses or close family members can own real estate together, and when one owner passes away, a portion of the property is transferred to the others. This avoids probate and makes transferring from the decedent to the co-owners much easier. The only drawback is if the co-owner is a spouse and both die at the same time (as in the case of an accident). In that instance, the property would go to probate.
While leaving all assets in a will may be more straightforward and less expensive, the probate process can take months or even years, causing stress and possible disputes between loved ones. Trusts provide the opportunity to have more control over assets and property while the owner is alive.
Dealing with an Existing Mortgage on an Inherited Vacation Residence in Asbury Park, NJ
One of the most frequent situations is when a mortgage is on an inherited vacation home. There are several options for managing a mortgage. The property can be sold and used to pay off the loan, and any leftover money can be distributed among the heirs. If one beneficiary wants to live in the home or own it, they can buy out the shares of the others. The mortgage payments must continue regularly to avoid losing the property to foreclosure. Any payments made can be reimbursed by the estate or beneficiaries once the estate has been settled.
Preventing Conflicts Among Heirs to Your Vacation Home in Monmouth Beach, NJ
Another challenge is preventing the heirs from arguing over the distribution of the estate. Many arguments can be abated when the instructions in the will or trust are clear and specific. Examples include who can use the property and when, how maintenance fees and upkeep should be handled, how the proceeds from an eventual sale should be distributed, etc.
The easiest way to confront any argument between beneficiaries is to talk about your final plans with those involved. It doesn’t have to be a formal meeting at a long table with a PowerPoint presentation explaining every detail and nuance, but everyone involved should have a general idea of what your estate plan is and how it will affect them.
Your Vacation Home and Memories Deserve a Personalized Estate Plan with Guidance from our Long Branch, NJ Estate Planning Attorneys
Your estate planning needs are as unique as your fingerprints. You need an attorney who acknowledges how important your family and estate are to you. You want to be heard and have your final wishes acknowledged by a professional who can bring them to fruition while putting you and your beneficiaries in the best position tax-wise. Whether you want to draft a trust, will, or wish to have your property transferred upon your death, our attorneys at Chamlin, Uliano & Walsh are prepared to create a clear, detailed, legally sound document that expresses your plans for those you leave behind. We proudly serve clients in Rumson, Holmdel, Wall, Deal, Freehold, Neptune, Long Branch, Beach Haven, Asbury Park, Manasquan, and throughout Southern New Jersey.
Our team of skilled attorneys has successfully accompanied our clients through this process, and we look forward to helping you craft an estate plan that is tailored to your needs. Contact us today if you have questions for our estate planning lawyers about including your vacation home in your estate plan to ensure its successful passage to future generations. Call us at 732-440-3950 or complete this form to schedule a consultation.