Choosing to Keep or Sell Your Family Retreat [Q&A]

Choosing to keep or sell a family retreat can prove to be challenging.

A family retreat or vacation home speaks to what many families value most. It’s a place to spend time together and build memories. And keeping this type of property in the family over generations requires planning, attention to detail and work.

We spoke to Dodee Crockett, wealth advisor at Merrill Lynch, on how to do just that and also how to sell the family retreat harmoniously when the time comes to divest this cherished asset.

When it comes to maintaining a family retreat, what is a best practice that you suggest?

As a family begins to grow, they should begin to think of how to preserve the property as a legacy. One essential step is to create a formal master plan. The master plan is a sort of constitution for the family retreat, presenting a clear mission statement for what the property means to each of the family members, what they see as its long-term future and how it will be handed down.

For instance, according to a recent Merrill Edge Report, millennials continue to redefine life priorities. Freedom and flexibility are key to this generation. Will they want to be part of the master plan with all of its responsibilities? Is the retreat a place of solitude, contemplation and intimate gatherings of immediate family members, or of frequent entertaining? Will the family develop the property further, or is the overriding aim to maintain its pristine simplicity? What priority does the family place on preserving the home’s natural setting? Is “civilization” beginning to encroach and does that make it more or less appealing as a long-term family investment? It’s important to have an understanding of the new mission with input from all family members.

Even the youngest members can contribute to the process, for example, by coming up with ideas to make the home more “green.” This may involve an outside facilitator interviewing family members and helping to identify life priorities and crystallize everyone’s views into a set of guiding principles for the property.

Perhaps the most vital function of the master plan, though, is to establish clearly how the property will transfer from one generation to the next. The choices are wide, depending on a family’s priorities and concerns.

What are some of the ways families have successfully shared family retreats into a new generation?

It is important to be collaborative and to acknowledge that each member may bring important resources (other than financial ones) to the table. For example, the property may be located near one family member that handles the ongoing inspection and maintenance as their contribution. One large family in Texas has set up a calendar of usage for each new family unit and a list of “chores” that would be done by each group. In another situation, one family is paid as “property manager” and all contribute to an account for large maintenance items.

Hopefully, the biggest priority is maintaining family unity. It is important to get these agreements, responsibilities and expectations on the table, preferably as a written document, so the family can regard all contributions for their value. We recommend that this document be reviewed by all every few years to make sure it is still serving the family well. Creating a trust is also an option to cover major capital improvements, ongoing maintenance and taxes.

How would you suggest beginning a conversation about passing down or selling the family retreat?

While every family situation is unique, there is a universal point about intergenerational issues surrounding the family vacation home: They should be handled with the same attention to detail you’d bestow on the succession of a family business. People might wonder if it is worth it to hold on to the family home. Some families may have trouble gaining a clear, objective view of true costs and benefits involved, due to what’s known as “the endowment effect”— the tendency for people to inflate the value of things they own.

For that reason, before families definitively move ahead with a vacation home transfer plan, it is recommended that they check in with their private wealth advisor. A budget and spending plan for the costs of the property should be created and shared. These costs may include not only the mortgage, insurance, taxes and maintenance, but also less obvious costs, such as travel to get there, or boats and other recreational equipment that must be maintained.

When an advisor has calculated the full amount, he or she can examine other potential uses of the funds and then help families think through the financial aspects. Of course, at that point, the family will still need to weigh the financial liabilities against the family’s emotional attachment to the home. But it’s often a good place to start.

We have also seen families with an initial desire to hold property as an investment for the future. But, when confronted with the actual costs, the family has opted to sell and then rent a home for those future family retreats. In one case, the family elected to contribute the property to a charity for use as a camp/retreat. In that way, they saw an honoring of their legacy by supporting a cause that was important to the family.

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