Best ways to bequeath a timeshare

Although timeshare ownership cannot guarantee adding years to your life, it can certainly add some life to your years.  But as Rocky Balboa declared in the great movie Creed “ Father Time is undefeated”.  We are all moving downstream towards the Ocean and, as such, many timeshare owners will consider, at some point, that they want their children or family members to have their timeshare when they die.

Many, if not most, timeshares are real property interests. Even with the advent of points-based ownership programs such as the Marriott and Disney (to name a few) points generally, correspond to a trust based on real property and transferred to the client/owner in the form of shares (or beneficial interests) of the trust.

How you hold title to your property affects how the title is transferred upon your death. Most property owners want to help their children avoid the cost and delays of probate proceedings after they die. Probate is the court process to determine the new owners of property after an owner’s death.

Having set up a will does not avoid probate; it only directs the probate court how to distribute your assets. Probate proceedings can tie-up your property and possessions for up to a year or longer (depending on the state) and can cost your estate thousands of dollars in probate costs and attorney’s fees. Often times the heirs are unable to access and use the timeshare until the probate is completed, yet the maintenance fees and financing costs (if any) must still be paid. Much of the proper planning that goes into the bequeathment of the timeshares and other possessions go into ascertaining the best ways to expedite or completely circumvent a cumbersome and potentially costly probate process.

Before I go any further,  I want to disclose that I am not an attorney, and I don’t even want to play one of TV – so the advice or guidelines that I layout must be for informational purposes only.  Please consult with an estate planning attorney in your area.  The information that I provide is taken from my own research on behalf of my clients, articles that I have read, and from clients who are estate planning attorneys. Also, my father had worked for many years in estate planning for his own clients and was very helpful to me in advising my clients.

Many of my married clients tended to take the title of their timeshare as “Joint Tenants” or as “Tenants by the Entirety,” and in doing so probate is avoided when one owner dies because the co-owner has automatic “rights of survivorship” and becomes the sole owner. This can defer probate, but not avoid it; when the surviving co-owner or sole owner dies, probate then becomes necessary.

Some of my clients have sought to avoid probate for the timeshare by conveying the timeshare to the children while they are still alive, or by adding children as joint title holders. While a good choice for many, this method does present potential conflicts of interest that we will explore further.

Any course of action is coupled with pros and cons and both positive and negative aspects with regard to estate planning need to be considered. A good plan for one client is not the best choice for another.

Adding children to the title so that all owners are Joint Tenants can avoid probate and is a good option for some owners. Of course, only adult children should be added to the timeshare title. A minor child cannot sign legal documents if the timeshare needs to be retransferred or sold.

There can be some drawbacks with this option;

a) the owner loses the freedom of independent control of and planning for, the timeshare; co-owners will have to agree on sharing the timeshare, whether each year to bank it or exchange it, who’s turn it is to pay annual fees, etc.

b) There can also be exposure to possible creditor claims against the joint tenant. For example, if a daughter who is on title loses her job and can’t pay her debts, her interest in the timeshare is an asset subject to judgment liens: (good luck with that one…).

c) if a son who is on title gets divorced, the timeshare is a property interest to be considered in the divorce action (yikes).

d) the transfer of the timeshare to the added owners is final (if it is time to sell or change ownership to the timeshare, all owners have to be available and agree to sign the necessary papers).

As one can imagine, having additional owners on title can create unanticipated problems. Arguments or bad feelings can result when co-owners can’t agree on use weeks or cost sharing due to changed circumstances such as busy work schedules, loss of work, being tied to young children’s school or athletic commitments, etc. Some adult children cannot make good use of a timeshare due to their current circumstances and don’t want the responsibility or regular expense.  At this point, many of the adult children are asking their parents to consider selling.

And this brings up a salient point:  an asset is either liquid (easily converted to cash i.e. gold, certain stocks) or illiquid (not easily converted to cash i.e. real estate in a depressed market). In much the same way that an asset is easy to convert to cash, a timeshare can also mirror a similar liquidity based on the particular owner’s product knowledge that generally comes from education and experience.

A parent who has owned a timeshare for some time, and has become adept at booking, exchanging and navigating through the resort-use guidelines, in a sense, holds a liquid timeshare asset readily convertible to enjoyable vacation experiences. The experienced owner is optimizing their timeshare and most likely hold it to a higher value due to their success with it.

The adult child may fear to inherit a perceived to be complicated product and perhaps has no interest in cracking the owner’s manual.  Not to mention the inherent and repeated learning curve for use each and every year (how did I book that thing last year?).  Do the kids want to inherit an illiquid asset (in the literal sense) that is accompanied by annual dues nondependent of their actual timeshare use acumen.

But I digress…

Many people are now using revocable living trusts for estate planning purposes, probate avoidance and/or tax benefits. The problems of adding adult children on the title to the timeshare are avoided with a trust.

Some of the advantages of creating a revocable living trust and conveying the timeshare (and other property) into the trust are:

a) The owner retains full control; the owner is usually the initial trustee of the trust. The owner retains control over the property, can amend or revoke the trust agreement, and can sell or transfer the timeshare and other property in the trust, as circumstances require. There is no need to consult with the children or to obtain their signatures in order to schedule, bank, exchange or transfer the week(s). Disagreements over timeshare use are avoided and 100% control remains with the parents/owners.

b) When a trust has been set up, various properties are generally conveyed into the trust.  As estate plan needs change, all that often needs to be modified is one document, the trust document, to amend the trust distribution to redirect future distribution or investment of various properties, etc. As trustee, there is no need for the children’s signatures or cooperation to make changes to your estate plan. For example, a simple amendment to the trust can direct that Jim and Susan, instead of Mike and Laura, are to receive title to the Hawaii timeshare when both mom and dad pass away.

c) Having all your timeshare weeks in the owner’s name as trustee of the trust avoids the problem owners sometimes encounter when using exchange companies. Some exchange companies require and bill for two separate accounts if the names of the owners on two timeshare weeks are not the same; e.g. if Bill  and Joan Fader add their son Bob as a co-owner on one week, and then add daughter Sue as a co-owner on their second week, the exchange company may require two accounts (and double costs), for an exchange of both weeks.

d) A trust can also arrange for the timeshare and other property to be held in the trust for a period of years after the owner dies until the children or beneficiaries become adults or are more mature. A trust can also be used to plan for the estate to provide for the care and special needs of a disabled spouse, child or grandchild.

With a trust, when the owner dies, the successor trustee can manage and distribute the trust property as has been instructed, without many of the costs or delays of probate.

A trust can avoid the need for a court appointed guardian to manage the property should the trustee become incapacitated.

For married couples with larger estates, properly prepared revocable living trusts can save tens of thousands of dollars in their combined federal estate taxes.

A revocable living trust is usually created to handle all of a person’s property, not just the timeshare(s). Establishing a trust is more complex and involved than preparing a will. Therefore, the costs to develop an estate plan using a trust will be greater than just having a will. However, the initial costs are offset by the long term savings against potential probate costs and taxes. Often, a property owner finds that the higher initial costs to create a trust are justified by the flexibility, control, and property management and harmony created by a clearly laid out asset disbursement plan (unless of course, you find out you weren’t the favorite…).

There are other advantages to having a revocable living trust and this post cannot cover them all. The estate tax, gift tax and income tax laws have are always subject to change so possible tax benefits of having a trust may change as well. For some owners, it could be beneficial for estate tax purposes, for example, to give all or part of a timeshare to a child, or divide timeshares among children, etc. For other owners, it would be more advantageous, under the tax laws, to make a different distribution or to keep the timeshares in their name or in a trust.

It is very important that you consult with your accountant and estate planning lawyer to determine if a revocable trust is right for your circumstances or if planned distributions will adversely affect your tax situation. Every estate and family situation is different. You should have an attorney with training and experience in estate planning law help you create your trust and related documents.

If you have already created a trust, you need to make sure that you transfer your timeshare and other real property into the trust by way of properly prepared and recorded conveyance documents. Most states have their own unique recording requirements. The documents should be prepared by an attorney licensed in the state where the property is located.

In summation, it’s important to take some time to reflect on the future of your timeshare ownership:

– Do you want to convey the timeshare interests to your family members?

– Do they want to receive those interests?

– If so, how do you best accomplish doing so with the least cost and complication?

I hope this post gives you food for thought ?