Trusts and Estates

Ca. Trs. & Estates Quarterly Volume 14, Issue 3, Fall 2008

PLANNING FOR FAMILY VACATION HOMES

By Nancy G. Henderson, Esq. and Kristen E. Caverly, Esq.*

As many as 13 percent of all homes purchased in recent years may be second homes acquired primarily for personal use, such as weekend and holiday retreats or family vacations. Many vacation-home owners hope to pass their properties on to their children or other family members. This article addresses the challenge of planning for such gifts, beginning with a consideration of some of the taxes that affect gifts of real property.

I. TAX CONSIDERATIONS: BEYOND TRANSFER TAXES

For most clients, the federal estate tax is the primary impediment to transferring a valuable property to children and grandchildren. Since EGTRRA 2001, state inheritance taxes may also be a concern. Gift taxes are another worry, as is the generation-skipping transfer tax. The problems these transfer taxes create are not peculiar to gifts of vacation homes, however, and other authors have done them justice. This article therefore, while addressing the basic transfer tax issues involved (see Section IV), will also address those taxes of particular concern to transfers of real property – income, capital gain and property taxes.

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