A timeshare can be a great opportunity to have a vacation spot every year. It’s your little getaway from the hectic life that comes with living in a city or working long hours at your job. It may be in the Texas Hill Country or a place with a view of the Gulf. It could even be a desert refuge where you can escape the daily grind and recharge. However, you begin to realize as you grow older that escaping to that little slice of paradise isn’t possible anymore due to health issues or a myriad of other situations. What do you do with the property then? How do you pass it on to your children or loved ones? And, what will happen to that timeshare if you pass away?
The short answer is: it’s complicated.
The laws and regulations concerning timeshares vary from state to state, jurisdiction to jurisdiction. This is why you need to be cautious when determining what to do with your timeshare. We advise you to seek the counsel of a lawyer when dealing with these assets so that you and y
our relatives are protected, regardless of what happens.
In this blog, we’ll review three different issues concerning estate planning and timeshares. First, how do you ensure the timeshare is inherited by your family? The second issue is what happens if you fail to make preparations for your timeshare being passed down. The final issue we’ll discuss is what to do if the family doesn’t want the timeshare that they’ve just inherited.
So, first, how do you ensure that your timeshare is inherited by your family? This depends on a few variables. The first is what type of timeshare it is. There are two different kinds of timeshares. The first is real property. Is your timeshare a home in a fixed location with a deed that outlines what fees and other obligations you must uphold? Or is your timeshare a contract that you pay maintenance and other fees for ‘points’ to use toward any of the timeshare company’s properties?
The second variable is where the property is located. As mentioned earlier, each jurisdiction has its own regulations for handling the transferring of property. You also have to consider the ramifications of how you’ll transfer property because it could affect the amount of taxes your family pays for the timeshare.
When these variables are considered, you have a few choices about how you want to set up your timeshare to be transferred. The first is ‘gifting’ timeshare property to the relative in question. However, be aware that the gift may be subject to a federal gift tax. If the value of the property is greater than $14,000 per donee, you are required to file a gift tax return. You can also gift your relatives a timeshare interest, but they need to be aware that the giftee will have the same tax basis as you in regards to the timeshare interest.
The other method of transferring your property is to declare who will inherit it in your will. In regards to the timeshare interest, this could help your beneficiary save money on capital gains taxes as they’ll receive a step up in the tax basis. But your relatives must be aware that the maintenance fees and other dues you owe for the timeshare simply do not cease when you pass away. The estate or beneficiary will still be responsible for paying what’s due until the end of the timeshare contract.
Finally, you can create a trust or LLC in which to place the timeshare property or interest. This will allow you to continue owning the timeshare while avoiding gift taxes. This transfer will also allow the asset to bypass probate which is helpful if your loved ones wish to sell the timeshare immediately upon receipt or if it is located in another state.
What if the timeshare you want to pass on is out of state and you are not interested in a trust or LLC? We suggest studying the laws regarding timeshares in that jurisdiction or hiring a lawyer local to that jurisdiction to help you determine the best path forward for planning for the future of the timeshare.
Let’s move on to the second issue: what if you fail or forget to make plans for the future of your timeshare before you pass away?
This depends on where the timeshare is located and the probate court involved. It’s not uniform across the nation. Again, we suggest you speak to an attorney about resolving probate issues so that the timeshare may be moved along, instead of sitting in limbo. And, as mentioned recently, the fees and dues associated with a timeshare do not end when you pass away. Even if you forget to plan for the future of your timeshare, your estate is still required to pay the bills on the timeshare until it is transferred to the proper heir or beneficiary.
If you pass away and your timeshare is located in a different jurisdiction, this may require a second probate to determine ownership. The probate court in your area can only control what is within that jurisdiction. Anything outside of it is outside its power. This is why it’s imperative to plan for your timeshare. You can’t just kick that can down the road. It will save your family time and money if you have a plan in place for what happens to your timeshare after you pass away.
As for the final issue: what if your relatives simply don’t want the timeshare?
They have a few options. First, they can sell the timeshare interest or property. However, they need to be aware of any regulations concerning the sale from the timeshare management company. When you first enter into a timeshare, you sign a rather long contract. Part of that contract will likely discuss the conditions for selling the timeshare. Some timeshare companies may require that you discount the interest or property. Others might need it to be sold back to them. Before your loved ones decide to sell, they need to read through that contract to determine if there are any stipulations.
Another issue arises if your relatives cannot afford to keep making the payments required by the contract. The best option they have is to choose not to inherit the property. The timeshare management company will likely, in the end, just recover the timeshare and sell it on to someone else.
When it comes to estate planning for your timeshare, there is a lot for you to consider before determining how to proceed. Obviously, you’ll want to make a plan for the timeshare instead of leaving it up to the probate court in order to save your family the money and anguish of having to deal with that. But, before you do anything else, talk with your lawyer about your options and how they can help you set up your timeshare to be passed along in a way that causes the least friction for your loved ones — it will save everyone time and money in the long run.