Many of my clients who live on the islands dream of leaving their beloved residence to loved ones. They imagine that, long after they are gone, their children and grandchildren will frolic on the beach at the family beach house, remembering the good times that they all had together while building more good times for the future.
This dream is often shattered when the children actually inherit the island residence. Upon the death of their parent, the residence loses its “Save Our Homes” property tax assessment cap that the parents enjoyed when the residence was homesteaded. This often results in a significant increase in property taxes, sometimes to the point that the family can no longer afford to retain the residence. When you add on the increases we have all experienced in homeowner’s insurance rates in Florida, it is not uncommon for even a modest town-home on the island to require tens of thousands of dollars to maintain on an annual basis.
There are additional issues as well. Who should inherit the residence? Should the residence be treated as satisfying a share of one of the children beneficiaries? What if he or she doesn’t want the residence? If you instead leave the residence to all of the children, who decides when each family can use the residence during the most popular vacation periods such as Christmas or spring break?
What happens if you leave the residence to a child who then gets divorced? Might a former daughter-in-law or son-in-law own a stake? What if one of the children isn’t financially capable of contributing his or her fair share of the annual expenses?
I am aware of at least one situation where the residence was left to all of the children, some of whom wanted to retain the residence as a vacation home and the others wanted to sell the residence. The children who wanted to sell the residence disagreed how much they should get paid from the other children who wanted to keep the residence for each of their shares. Something ugly like a partition action which results in a forced sale could erupt.
These are all serious issues that merit attention. I happen to be giving a free lecture open to the community sponsored by the Sanibel-Captiva Trust Company on Wednesday, April 11th from 9:30am to 11:30am at the Sanibel Community House. I’ll be able to delve into the details at that talk, but there are some general guidelines that you might want to consider before telling your estate planning attorney how you would like your island residence bequeathed.
First, you want to consider whether your children really do want the residence. Is leaving them your Sanibel or Captiva property important to them? Or is it just important to you?
If your children are busy raising families and working in a career, a Sanibel residence might be viewed more as a burden than as a gift.
How should the residence be bequeathed? Rather than outright bequests to one or more children, consider creating a testamentary trust inside of your estate plan, or perhaps form a family partnership. This could serve to both protect the residence from a beneficiary’s divorce or other creditor problem, as well as centralize its management and control. It’s usually better to put the responsibility of collecting the money for annual expenses on one or two of the children rather than all who own it.
You may also want to consider providing a source of liquidity to pay for the expenses associated with the residence. It’s not right to put a specific monthly or annual dollar amount in the trust. Instead, it’s important to allocate a sum of money to be held in the continuing trust to generate income (or invade the corpus itself) to pay for the expenses associated with the residence.
There certainly are many issues to consider. But doing this thinking up-front will help you and your family to better realize your dreams of continued enjoyment for generations to come. If you’d like to hear more, contact Frances Steger at the Sanibel Captiva Trust Company at 239.472.8300 or email at firstname.lastname@example.org.
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