Thinking about Donating your timeshare to Charity?

In this post about timeshare donation, the content was principally drawn from an article written a number of years ago by David H. McClintock, CPA for Timesharing Today. Although the article is dated back to 2001, I have found that the content sound and if nothing else a good starting point with regards possibly donating a timeshare. I have also added my own commentary throughout the article as I saw fit.

As always, this article is for informational purposes only, please consult your accountant or legal expert with regards renting, selling, donating and bequeathing your timeshare(s).

Mr. McClintock has written a number of very interesting articles on the tax implications of timeshare donation, rental and sales. I will be curating his work and submitting his articles with my thoughts interspersed.

You have decided it’s time to get rid of that timeshare week you never use or can no longer afford. Should you sell it? Or should you donate it to charity?

If you have a charity that you would like to help, by all means, donate your timeshare to that organization. However, if you want to maximize your proceeds from the disposition of your week, it will almost never make sense to donate a timeshare week.

The Economics

If you sell the unit, you would recover 100% of the value as sales proceeds, less any selling costs. However, if you donate the unit, your proceeds will come from the tax savings associated with your tax deduction. If you are in a 28% tax bracket, your tax savings will be approximately 28% of the value of the unit. Thus, if you could sell your week for $5,000, you would net $5,000 before considering selling costs. But your tax savings from a donation would be only $1,400 (28% of $5,000). The price at which you can sell the unit is normally about the same “fair market value” as what your charitable deduction should be for a donation of the week.

Fair Market Value

Your tax deduction for a donation is limited to “fair market value” of the week. Fair market value is not what you paid for the week. Nor is it what the developer is currently selling weeks for. The tax concept of fair market value is the price that a willing buyer and a willing seller would normally agree to in the marketplace. Since your marketplace is the resale market, that value should be equal to or close to what you could actually sell the week for. The prices of other resales are normally the best evidence of the approximate fair market value of your week.

If you value the week (alone or combined with other non-cash donations) at more than $500, you must file Form 8283 with your tax return, putting IRS on notice that there might be a valuation issue for them to scrutinize. If you value the donated week at more than $5,000, you must get a formal appraisal. Further, if you donate more than one week in a year, you must get an appraisal if the total value of the donated weeks exceeds $5,000.
If required, the appraisal must be performed by someone who is “qualified” to do the appraisal, based on requirements set forth in the federal income tax regulations. Many charities state that they will provide a valuation statement for the donor. Beware of such an offer. If the value is over $5,000, you need a formal appraisal. Whatever the value is, you are responsible for the valuation shown on your tax return. If you significantly overstate the value of your week, there are some stiff tax penalties that can apply.

The IRS

If the charitable organization disposes of the week within two years after your donation, it must file Form 8282 with the IRS and send a copy to you, disclosing the amount realized from the disposition. If the IRS doesn’t examine your return based on your required disclosures, it has another alarm that goes off if the Form 8282 shows a significant discrepancy between the donation deduction you claim and the amount realized from the charity’s disposition of the property.
We are not naive enough to believe that taxpayers don’t sometimes try to inflate the donation value used for tax purposes. However, to inflate the value enough to break even versus a sale may border on (if it doesn’t actually constitute) outright tax fraud, which can carry some significant criminal penalties. Example calculation: Assume that a week will sell for $5,000, its fair market value. In order to save taxes of $5,000 on a donation, a person in a 28% tax bracket would have to list the tax return value for that timeshare week at $17,857!

Donating the Use of a Week

Someone contemplating a timeshare donation with a resulting tax benefit should ensure that it’s the ownership of the week that is to be donated. The tax law specifically prohibits a tax deduction for donating the use of a week (e.g., donating this year’s week) to charity.
I believe this is very important as many of my clients have auctioned off the use of their week for charity events. Although it’s fine to auction the actual use of a week, it is important to realize that does not qualify as an actual taxable donation.

Some Final Thoughts

Sell the week if you are trying to maximize your profit (or minimize your loss). Donate the week only if you truly have a charitable motive or if the selling costs and headaches of selling exceed the anticipated gross sales price.
You will likely see advertisements or hear or read stories that suggest using valuations for tax purposes for donated timeshares that are much higher than the expected selling price or that are based on developer prices. Some charities tout such valuation methodology. Beware of playing roulette with high tax valuations. The stakes for you can be very high.

Whatever you do, don’t make a final decision based solely on this article. If you are considering a donation of your timeshare week, discuss it with your tax advisor. Take a copy of this article with you and ask how it applies. It’s particularly important to do so since this article does not cover all possible circumstances associated with a donation.

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 you 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 ?

Marriott’s Grande Ocean Review

I recently visited the Marriott’s Grande Ocean with my family over our spring break and decided to pen a review of the resort. I handle quite a few owner rentals for Grande Ocean and the trip served the dual purpose of vacationing with my loved ones and getting to know the property better. I had stayed with my family @ the Marriott’s Barony Beach Club a few of years back and had managed only a brief visit to the Marriott’s Grande Ocean down the beach.

My wife and our two teenagers were joined by two of their cousins, close in age, who had been driven up by my brother-in-law from Florida.

Upon arriving at the Marriott’s Grande Ocean we were directed to our villa, a lower floor unit with a view of the Ocean off in the distance past the pool bar. I quickly took some pics of the unit with my smartphone before it devolved into a cereal-spilt, wet-clothes-on-the-ground den of hyper excited teenagers. With my task complete I retreated to the master bedroom, a feudal king luxuriating on his erstwhile throne of a bed flipping through the cable channels. The young serfs celebrated their family reunion by running up and down the hallways knocking on the doors, irritating my wife and acting as teens have since time immemorial.

My period of travel decompression didn’t last long as I was reminded of my promise to provide food for our extended family of six. Seventeen minutes later, with spaghetti noodles gratuitously plastered on the tile wall above the sink, dinner was served and thus we began our stay at the Marriott’s Grande Ocean in earnest.

Marriott’s Grande Ocean is a Marriott vacation club located on Hilton Head Island in the state of South Carolina, about 45 minutes from Savannah, Georgia. Marriott boasts eight vacation clubs located on Hilton Head making the island the home to over 13 percent of all the Marriott vacation clubs worldwide. Marriott’s Grande Ocean is considered by many to be the preeminent Marriott Hilton Head property due to a number of factors: it’s a true oceanfront resort with a large campus replete with pools, activity areas and enjoys a huge beach. It’s located close to and offers free access to the Sea Pine Plantation nature preserve and home to the picturesque Harbor town located on the Southern tip of the Island. Marriott’s Grande Ocean was built in phases starting back in 1992 making it one the longest standing Vacation Clubs surpassed by only a handful of resorts such as the Marriott’s Monarch (located in the Sea Pines Plantation) opened in 1984 and the Marriott’s Desert Spring Villas, opened in 1988. It’s definitely considered by many owners to be part of an elite group of Marriott vacation clubs.

I have been fortunate enough to have visited nearly every Marriott vacation club and I would definitely score Marriott’s Grande Ocean into the top ten. And the ranking would not be based on just the resort itself, but also for the wonder and beauty that is Hilton Head. Hilton Head a foot-shaped Island connected by a main bridge and ferry to the coastal mainland of South Carolina and features the aforementioned Sea Pines Resort Forest Preserve which encompasses over 600 acres of land, waterways and basking alligators. I also love the proximity to Savannah with its history, haunted house tours and colonial era and retro vibe.

Hilton Head Island doesn’t permit the gaudy billboards so often prevalent in resort towns such as Orlando and Myrtle Beach and offers great shopping and dining options tucked away behind and under the huge live oaks draped in Spanish moss.

Ok, and I do have to admit I loved the Bocci ball courts at the Marriott’s Grande Ocean and got defectively competitive playing with my kids and their cousins. Let’s just say tears were shed. But that’s a story for another time.

On of the interesting tidbits that I picked up during my stay was that of a raging debate over the replacement of the much beloved Pool Bar Jims, a resort fixture since the beginning. The Bar was apparently very popular for its frozen beverage menu and super cool staff and owner. I am not a big drinker and had not enjoyed libations as the previous establishment, so I had no basis of comparison, but a lot of guests around the pool seemed to enjoy taking potshots at the new pool bar and its corporate staff. I read somewhere that removing Jim (the owner) from the Grande Ocean was like kicking Batman out of Gotham. Brain freeze and high sugar content aside, I found myself pining for days of Pool Bar Jims, such were the moving stories told to me by the long-standing owners at the various hot tubs I frequented.

As for the location of our villa: we were assigned Courtyard/Oceanside villa located on the first floor of the Starfish building. We enjoyed some ocean view from a first-floor balcony but were too low to be categorized as Oceanfront/Close to beach.
I am very familiar with the different view categories established by Marriott at their various resorts and in my next post, I would like to review how Marriott determines and classifies their different view categories and what to expect from each one.

I spoke with one of the front desk managers to find out why there as a dual view category assigned. He explained to me that when the resort had opened back in the early 90s there had been significantly less foliage and the resort labeled their villas under two view categories: Oceanfront and Oceanside, however, with the strict Hilton Head regulations on pruning of trees (allowable once every three years according to the manager) branches, leaves, and tree trunks began to naturally block the views. In order to manage the expectations of the guests whose “Oceanside villa” featured a bushy Palmetto fronting a pool area with a minimal view of the actual ocean, Marriott decided to modify the view categories to the more reasonable sounding “Courtyard view” and “Close to beach” in place of Oceanside and Oceanfront view categories.

With just a “Courtyard view” we still loved the view and could witness many a guest throwing their hands up in frustration as they stormed out of the new pool bar area (just kidding).

My wife, kids, and their cousins loved the property and I would be thrilled to be able to bring them back… but I am not going to cook next time.

The Marriott Pulse properties – chasing Airbnb…

I recently had the pleasure of touring one of Marriott’s newest vacation club properties, the Marriott San Diego Pulse. My wife and I were visiting friends in Escondido and decided to drop down to San Diego to check out the city and tour the Pulse. Located in the Gas Lamp quarter and close to Balboa Park, the Pulse enjoys great shopping and hundreds of dining options within easy walking distance to the Vacation Club. One of the sales reps showed us around the lobby, fitness area and took us up to see a room. The room we previewed was categorized as a hotel room, however, it was much more spacious than a typical hotel room with a separate bedroom and small living room/kitchen area complete with an incredible view of the surrounding city. Although not nearly as spacious as the standard two bedroom villa commonly found at the majority of Marriott vacation clubs, this hotel/vacation club hybrid was very nice and had obvious appeal to those looking for a short stay in the city.
 
The Pulse properties by Marriott represent the newest expansion of the Marriott Vacation club brand into Urban locales such as New York City, Miami, Washington DC, and Boston.
 
By looking at the changing demographics of the Marriott vacation club we see many owners transforming into empty nesters who had previously used their ownership to vacation with their children. As the kids grow up and leave the home, Marriott is certainly doing its market research to explore new venues in which to expand their Vacation club system. It makes a lot of sense for the newest vacation clubs to be located in urban locales typically monopolized by hotels and Airbnb.com rentals. Empty nest owners no longer need the larger accommodations and full kitchens as they are traveling without the full family.
 
The aging of Vacation Club owners is a given and the Pulse properties are part of Marriott’s strategy in filling that vacation gap until the empty nesters become grandparents and the cycle of full resort vacationing begins anew. The Pulse properties are also part of Marriott’s overall sales and marketing strategy aimed at the next generation of potential owners, millennials who are more likely to be attracted to shorter stays and culturally rich urban centers.
 
However, there is another factor in the mix as well: the long-established hoteliers such as Marriott and Hilton are being left in the dust by the previously mentioned market-disrupter Airbnb.com.
 
The newest hospitality company Airbnb is less than 10 years old and doesn’t own a single hotel room, yet the company was recently valued at 30 Billion. To put that in perspective, Airbnb enjoys a valuation greater than the Hilton (22B) and Hyatt (6B) combined!
 
Marriott has been in business some 90 years and for them to witness a small startup blow up and fly past them must have made quite an impact (although with the recent acquisition of Starwood hotels Marriott’s Valuation is still higher than Airbnb’s). Marriott International is a separate company from Marriott Worldwide Vacations Worldwide, the current owner, and operator of the Marriott Vacation club, but Marriott Vacation club is partly owned by Marriott International and heavily influenced by the Mothership.
 
 
Marriott, along with the other hoteliers is witnessing a hospitality market disruptor comparable to Tesla, Uber or Netflix. All these companies deliver a service or product that had heretofore been monopolized by big auto/oil, passenger fare, and the cable companies. And there is more to it just being a new system provider, Airbnb doesn’t just meet a market demand, it had created a market demand, namely the demand for spacious, home-away-from-home type accommodations in cities that had been previously relegated to the very rich in the form of high-end luxury suites or apartment rentals. Prior to Airbnb, it was nearly impossible to stay in a short term condo accommodation in the city without paying exorbitant rates. Airbnb opened the condos and apartments of thousands of city dwellers throughout the world and unlocked millions of accommodations previously unavailable to the market.
 
Success leaves clues and Marriott is eager to quickly step into the market by offering their hybrid hotel/apartment in hopes of cashing in on the demand for spacious accommodations in culturally rich city centers. And speaking of quick: Marriott has opened five pulse properties in the last two years and offers non-Pulse locations in Las Vegas and San Francisco as well.
 
The Pulse properties look to do well by eschewing the paint-by-number 300 sq ft hotel rooms long offered by the most prominent hoteliers and focusing on offering larger and better-equipped accommodations complete with the activities geared toward city exploration and experience.
 
The introduction of the Pulse properties by Marriott makes sense in three respects:
 
It’s attractive to empty nest owners that wish to use ownership to travel in smaller groups or as couples without kids outside of the typical resort environment.
 
It’s attractive to the next generation of potential owners, the millennials, who may find themselves with smaller families or no kids and seek to travel for shorter periods of time than typically offered by the traditional timeshare marketplace.
 
It taps into the overall demand for spacious urban accommodations so expertly exploited by Airbnb.
 
Marriott will certainly look to push the Pulse properties, as the era of super resort construction ended during the last market crash (Marriott Vacation club wrote off a 750 million dollar super resort planned for Aruba in 2008). Marriott now looks to capitalize on their changing owner demographic, court the new generation of Vacation club owners and invest in transforming already-existing properties that require a great deal less in capital commitment than the previous Marriott vacation club build outs.