When it comes to estate planning, second properties add an intriguing layer of complexity. Whether it’s a cozy cabin in the woods, a beachfront condo, or a charming villa, these additional assets require thoughtful consideration as to who should inherit them and how.

​Let’s explore the unique challenges and strategies for weaving second properties into your estate plan.

Inheritance Intentions: Do your loved ones share your enthusiasm for the second property? Some may cherish the memories associated with it, while others might prefer to sell it in favor of owning their own future properties to create memories with their spouse and children. Your child may have moved to another state where it doesn’t make sense for them to maintain the property you have. Communicate openly about your intentions and listen to their perspectives. Then make the best decision possible after all points of view have been considered.

​Equitable Distribution: If you have multiple heirs, how do you ensure fair distribution? Leaving the second property outright to one child, even after another child decides they won’t use it, may lead to resentment. You can explore balancing out the gift of the second property to one child by giving an equal amount of assets or value to other children. Or if all of your children do want to have access to the property, you can look into options like setting up a trust for potential use and enjoyment by everyone in the family. Even in trust with use and enjoyment of the property going to multiple beneficiaries, there may be unique challenges associated with maintaining the property.

For example, how will your children settle on payment of property taxes, upkeep and expenses associated with a property they may not use equally? If one child spends more time at the cabin than the other, do they pay more in taxes and utilities? What happens if someone wants to add a garage or store vehicles and toys at the cabin? You also need to consider what happens if your child passes away and their spouse becomes the owner of that child’s share in their place. These are all things that should be considered and discussed.

Lifetime Gifting: Consider gifting cash or other assets to your children over your lifetime. This will reduce the overall size of your estate so that it is hopefully below the estate tax exclusion rate upon your passing. This not only reduces your taxable estate but also allows you to witness the joy it brings to your heirs during your lifetime.

​Trust Based Planning: A trust allows you to maintain use and enjoyment of the property, and avoid a probate at your death. This will give your heirs and beneficiaries a better tax position when they do inherit the property which can reduce future capital gains. Your trust can also consider some of the other challenges above. A trust can hold money or investment assets over time and make them available to your children and heirs for payment of property taxes, utilities and upkeep of the property so they don’t need to fight over who is responsible. Your trust can also make decisions about whether a spouse of your deceased child, or a potential ex-spouse of your living child would have any right or claim to your property.
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​There’s lots to think about when planning for second properties and in estate planning in general. If you haven’t already, make sure to download our free resource: The Essential Estate Planning Checklist, or better yet, book a call today.