Monday, July 25, 2016

When does it make sense to add a trust to your estate plan?



When thinking of the hierarchy of estate planning documents, the two that are likely to be on top are wills and trusts. A will is a more basic document that outlines who will receive your assets when you die and may name guardians if you have young children.
Trusts are more sophisticated legal documents that hold assets on behalf of a beneficiary or beneficiaries. How do you know when it makes sense to add a trust to your estate plan? The following four considerations will help you determine whether one is advantageous for you.
Privacy
If you only have a will, a portion of your estate is likely to go through probate. Probate is the process of distributing your assets after you pass, and it can be both expensive and time-consuming. Additionally, probate is a public process, meaning that anyone can go to the courthouse and look at the assets that you had.
If you have a lot of assets that would be subject to probate (assets with payable on death/transfer on death designations, jointly owned assets and assets with beneficiary designations are usually exempt from probate), putting them inside of a trust can preserve your privacy.
Owning Property in Multiple States
Let's say you own a home in Minnesota, have a cabin in Wisconsin and own hunting land in South Dakota. Situations like these can become complex when your estate is administered. Without a trust, you'll likely have to go through probate in each state where the real estate is held, which isn't ideal.
Greater Control
Implementing a trust can allow you to set rules regarding how and when your heirs receive their inheritance. These rules can take a couple of different forms. One option may be to designate specific purposes that trustees can use assets (e.g., for college or for a home). You can also make age-based rules (e.g., a trustee will receive 25 percent of their inheritance at age 30, 25 percent at age 40 and the remaining 50 percent at age 50). This helps you to better ensure that your legacy is utilized in a way that reflects your vision for it.
Philanthropic Wishes
Many people would like to leave a portion of their estate to a charity or charities. Trusts can help you give to charity in a more efficient manner. One option, the charitable remainder trust (CRT), is funded while you are still alive. During your lifetime, the CRT provides you or a specified beneficiary with an annual income stream. After a fixed amount of time or once you pass, the remainder of the trust goes to a charity of your choice. This allows you to get an immediate tax deduction today, receive a stream of income from the trust during your lifetime and ensure you'll leave behind a philanthropic legacy.
Trusts are more expensive than wills to set up, and they can be an administrative hassle. But if you found yourself desiring any of the four considerations we laid out, then you'll probably find those costs to be a small price to pay for the ultimate value the trust will provide you and your loved ones.

Sunday, July 24, 2016

New FAFSA Rules Give New Options

Let’s take a look at some recent changes to Federal Student Financial Aid and the Free Application for Federal Student Aid (FAFSA) for the upcoming academic year, and how those changes may impact our planning process.
First, the rates have changed. Federal Direct Student Loans (subsidized and unsubsidized) to undergraduates with a first disbursement date between July 1, 2016, and June 30, 2017, carry a 3.76 percent interest rate, down from 4.29 percent last year. Direct unsubsidized loans for graduate students issued during the same time frame are fixed at 5.31 percent, down from 5.84 percent; and interest rates on Direct PLUS loans for parents of undergraduate or graduate students, have also dropped, down to 6.31 percent.
Secondly, you can now file your FAFSA in October, prior to the next school year. The FAFSA collects information relative to a student’s assets and income and the student’s parents’ assets and income. A percentage of “countable” assets and income is used to calculate the student’s Expected Family Contribution (EFC) and to put it simply, a higher EFC usually means less financial aid. If your child will attend college starting in the fall of 2017, you can now file as early as October 1 of this year. Also, you will be required to use your 2015 income information. Going forward, students and parents, as appropriate, will be required to use the income information/tax return from the tax year two years prior to the first disbursement of financial aid. Anyone who filed for a child attending school this fall, knows that 2015 tax returns were used for this year as well, so the same information will be used again during this transition year to the new system.
Previously, families used to file the FAFSA on January 1, or close thereto, simply estimating their tax returns, and then would need to update it when they had their real numbers, after their tax returns were filed. The new system allows for faster and more accurate figures for families to plan accordingly.
You might think that your student won’t qualify for federal student aid, but it’s wise to file anyway, as this filing is often a requirement before a student can receive any aid from their chosen institution.
So, with this in mind, how do these changes affect strategies commonly used to reduce the financial stress of paying for college?
Well, one major consideration when planning for financial aid is the timing of income. Remember that a percentage of parental income is “counted” in determining that EFC. Since parents will now be using the tax returns from a year earlier, they need only wait to raise cash (if need be), whether it be by selling appreciated securities or taking a distribution from a tax-deferred retirement account, until the tax year that the student is starting his or her junior year. Previously, it was advised to wait until the tax year that the student was starting his or her senior year before doing anything that would result in increased taxable income. If parents wait until the tax year of the student’s start of their junior year, those earnings will not “hit” their parents’ tax returns until the student’s senior year and won’t be accounted for in any FAFSA filing.
When FAFSA is calculated, the parents’ assets are given much less weight, just 5.64 percent, compared to any assets belonging to the student, 20 percent of which are considered in the calculation of the EFC. This comes into play with 529 plans, since plans belonging to the student or the parent are calculated using the parent’s weight of 5.64 percent. On the other hand, if a 529 plan is owned by a grandparent, it is not a “countable” asset. However, it is important to know that if that 529 plan is owned by a grandparent, any distributions from the plan to the student can be included in the student’s income, which can be counted up to 50 percent. Knowing that there is a two-year delay in countable income for purposes of FAFSA, it can be better to use 529 distributions from parents or student-owned accounts in the first two years, and distributions from 529 plans owned by grandparents in the junior and senior years, to keep the “student” income as low as possible until it is no longer used in the calculation of the EFC.
One last thing to consider is using gift opportunities in a way that won’t factor into the FAFSA equation. As discussed above, grandparents have some options in the last two years of the student’s schooling (again, in the years that income won’t be counted on the FAFSA). Additionally, federal tax law allows unlimited gifts to pay for tuition (even if the gift exceeds the annual gift tax exclusion) if the money is paid directly to the college (other education-related expenses do not qualify for this treatment). However, such a gift may affect a financial aid package offered by the school, so it is important to check on any potential impact before making a gift directly to the school. This strategy can help a student without affecting the EFC calculation and can also be an effective way to transfer wealth by reducing the overall taxable estate without triggering a gift tax.
Another way that grandparents can help, more often with graduate students than undergraduate students, is to gift an appreciated asset, rather than proceeds from the sale of an appreciated asset, to a student who is 24 years old or older. If that student is in a low enough tax bracket (which we expect from students), he or she will not need to pay capital gains taxes on any gains recognized by the sale of such assets. By gifting the appreciated asset, rather than cash, more funds will be available to help the student than if the grandparent sold the asset and had to pay capital gains tax on the proceeds. If the student is under 24, however, the “kiddie tax” will cause those assets to be taxed, based on his or her parents’ tax rates.
Look, college is expensive, and it’s not getting any cheaper, but having a financial plan that incorporates college funding can help minimize the impact of that expense on your future and your kids’ futures. Make sure that your money is working smarter, not harder.

Saturday, July 23, 2016

Midyear Tax Planning: Miscellaneous

School vacations are tough on working parents. Especially finding affordable alternative childcare. The Child and Dependent Care Credit is available for expenses incurred during these lazy days of summer as well as throughout the rest of the year.

The cost of day camp can count as an expense towards the child and dependent care credit
A sitter in your home qualifies
Expenses for overnight camps do not qualify
Summer school tutoring does not qualify


Medical Deductions

To qualify for a medical deduction this year your unreimbursed medical expenses must exceed 10% of your adjusted gross income. For taxpayers 65 and older, the threshold will at remain at 7.5% through 2016. This deduction can only be used for expenses that exceed those thresholds.

If you are a senior, in addition to items such as hearing aids and eyeglasses, you can deduct a portion of premiums for long-term-care insurance. Make sure you keep track of all qualifying expenses in your tax file. And don’t forget to keep track of the mileage and travel costs for medical services.

Check Your Withholding

High earning taxpayers will owe an additional 0.9% Medicare tax on earned income of more than $200,000 for single filers or $250,000 for married couples who file jointly.

For example, if you’re single and earn $230,000 this year, your employer will be required to withhold 1.45% on the first $200,000 and 2.35% on the next $30,000. A total of $3,605 in Medicare taxes.

These income limits will not be adjusted for inflation so they will include more taxpayers every year.

Tax Brackets

The highest tax bracket for individuals is 39.6%. It will affect single taxpayers with a taxable income over $415,051 and taxpayers filing jointly with taxable income over $466,951.

Taxpayers in this bracket are also hit with a higher tax rate of 20% on dividends and long-term capital gains.

Adoption Credit

For this year, the maximum adoption credit is $13,460. The credit will begin to phase out for families with modified adjusted gross incomes above $201,920, and the credit will go away completely for those with incomes above $241,920.

If you adopt a child with special needs, you are entitled to claim the full amount of the adoption credit, even if your out-of-pocket expenses are less than the tax credit amount. For example, you incur no expenses to adopt a special needs child, you are still entitled to the full credit.

Friday, July 22, 2016

Immediate and Long-Term Tax Strategies for Windfalls

FROM LAW.COM

Individuals may have financial windfalls because of a variety of occurrences. Some windfalls result from good fortune, such as winning the lottery or selling a business, while others result from bad fortune, such as medical malpractice or an inheritance. Either way, there are tax consequences to consider. Some consequences are immediate, while others have a long-term impact.

Immediate Tax Consequences

The receipt of a windfall may be taxable or tax-free. The general rule is that income from whatever source derived is includible in gross income (Code Sec. 61). However, there are various exclusions that transform some recoveries into tax-free income.
Damages. Damages from lawsuits, settlements, and awards are taxable unless they are payable for a personal physical injury or sickness (Code Sec. 104(a)(2)). Thus, damages received for a non-physical personal injury, such as defamation or discrimination, are taxable. So too are punitive damages and damages for back pay and other taxable compensation. Interest paid on a judgment usually is taxable.
When an attorney agrees to represent an individual on a contingency basis and there is a recovery, the individual is taxed on the entire award (Banks II, S.Ct., 543 U.S. 426 (2005)). This is so even though the individual does not actually receive the entire award because one-third (or whatever portion was agreed upon) is disbursed directly to the attorney.
Damages for a wrongful death claim typically are comprised of compensatory damages for physical and mental injury as well as punitive damages for reckless, malicious, or reprehensible conduct by the wrongdoer. The portion for compensatory damages is tax-free while the portion for punitive damages is taxable. However, if a wrongful death claim is made under a state statute that treats all of the recovery as punitive damages (i.e., precludes compensatory damages), the recovery is fully excludable for federal income tax purposes (Code Sec. 104(c)).
Damages for emotional distress resulting from a nonphysical personal injury, such as job discrimination, are excludible only to the extent used for medical costs. “Soft injuries,” such as headaches, insomnia, and weight loss, usually are treated as emotional distress, and allocable damages are not tax-free. For example, in one recent case a postal worker could not exclude damages for these soft injuries arising from her discrimination action; the discrimination did not cause any physical injuries (Barbato, TC Memo 2016-23).
Damages received to compensate for property losses may be tax-free if the recovery does not exceed the individual’s basis in the property. The recovery is treated as a tax-free return of capital (Code Sec. 1001).
As a general rule, legal fees to recover tax-free damages are not deductible while legal fees to recover taxable damages are deductible. Deductible legal fees related to personal injury usually are treated as miscellaneous itemized deductions, which can be written off only to the extent total miscellaneous itemized deductions exceed two percent of adjusted gross income (Code Sec. 67(a)). Miscellaneous itemized deductions are not deductible for purposes of the alternative minimum tax (Code Sec. 56(b)(1)(A)(i)). However, legal fees for certain discrimination actions can be deducted as an adjustment to gross income (Code Sec. 62(a)(20)).
Gifts and Inheritances. The receipt of gifts and inheritances are tax-free, regardless of amount (Code Sec. 102). However, recipients of income in respect of a decedent must include it in their gross income when received (Code Sec. 691(a)). Thus, a person who inherits a $1 million IRA is not taxed on the inheritance of the IRA. However, when distributions are taken from the IRA, they are taxed to this beneficiary.
A person reporting income in respect of a decedent can take a deduction for federal estate tax allocable to income when the income is includible (Code Sec. 691(c)).
Lotteries, Gambling, and Prizes. Good luck can translate into millions of dollars. In January 2016, three winners split a Powerball jackpot of $1.6 billion, and in May 2016, one lucky winner hit the $429.6 million Powerball jackpot. These measures of good luck are fully taxable. In the case of lottery winnings, the only question is when the winnings are taken into income.
If a lottery winner opts for the lump sum, it is fully taxable in the year of the drawing (Code Sec. 451(a)). If the winner opts for the payment in installments, the winner is taxed only when installments are received (Code Sec. 451(h)).
Business IPO and Buyouts. Entrepreneurs may make it very big, taking their companies public or selling to new owners. While not necessarily thought of as a windfall because it may be years in the making, the resulting money from the deal presents similar challenges to these individuals.
Going public does not result in any immediate tax consequences for the owner. His or her holdings merely become more valuable. The sale of a business usually results in capital gains for the owner. However, asset sales (as opposed to stock sales) may trigger some ordinary income; ordinary income results from the sale of ordinary income property (e.g., inventory).
Whistleblower Awards. The government pays for information that leads to recoveries for fraud in Medicaid, government contracting, banking, taxes, public securities, and more. For example, there are two types of whistleblower awards from the IRS (Some of these are whistleblower awards where the government pursues information provided by individuals and then shares the recovery. Others are qui tam awards for private persons who bring an action on behalf of the government.
These awards can be in the millions of dollars. For example, an SEC award to an individual in June 2016 was more than $17 million (http://www.lexology.com/library/detail.aspx?g=e5a08c17-1bfe-42d8-8ed0-b70b7f2caa8a). Individuals receiving these awards have argued that they are capital gains, but the courts have routinely treated them as ordinary income (see, e.g.,Patrick, 142 TC 142 (2014), aff’d 2015-2 USTC ¶50,454 (7th Cir.)), where the courts rejected the taxpayer’s argument that he sold information and that his recovery was a capital gain).
Attorney fees relating to whistleblower awards are deductible from gross income (Code Sec. 62(a)(21)).

Offsetting Windfall Income

If a windfall is taxable, there are steps that can be taken to minimize taxes.
Income-Splitting. Income-splitting is a strategy in which income is shared so that it is taxed among several people. For example, if there is a winning lottery ticket, reporting multiple owners of the ticket spreads the resulting income accordingly. However, when trying to spread income in the family, the person holding the winning ticket must be able to show there was an agreement or arrangement in place to share the prize before the winning number was picked; otherwise, it is only an attempt by the winner to shift some of the tax burden to others.
In the spirit of shifting income, an individual may give cash or property to a family member so that resulting income is taxed to the recipient. For example, an individual who is providing support to a parent may give dividend-paying stock to the parent so the parent collects the dividends and then uses them for his/her support. There are two considerations here: (1) federal gift tax rules that may influence the size of the gift and (2) the tax situation of the recipient. Income-shifting, for example, will not work well for a child who is subject to the kiddie tax because such income is effectively taxed to the child at the parent’s marginal rate (i.e., no tax savings for the family).
Charitable Contributions. Someone receiving a windfall is in a position to give generously and take a charitable contribution deduction (Code Sec. 170). With large windfalls, setting up a charitable foundation may make sense to enable the person to obtain sizable tax deductions up front and oversee the disbursement of the funds for favored charitable purposes.
Withholding and Estimated Taxes. Some windfalls (e.g., gambling winnings, lotteries) are subject to automatic withholding. Most others are not. It is up to the individual to ensure that sufficient estimated taxes are paid on a taxable windfall to avoid estimated tax penalties.

Long-Term Impact

When an individual receives a windfall, likely there is a need for comprehensive financial and estate planning. Here are some tax-wise considerations:
• What investments should be made with the windfall? Some windfalls may need to be invested safely in liquid assets (e.g., a windfall needed for future medical costs). In other cases, an individual may want to invest for growth or tax-free income. For example, municipal bond holdings may be more attractive than taxable investments because the windfall recipient has been pushed into a higher tax bracket.
• Is there a concern about death taxes? For example a windfall can mean that the person’s gross estate will be larger than the federal exemption amount ($5.45 million in 2016) and subject to estate tax; the tax can be minimized or avoided with estate tax planning. State death tax exemptions must also be factored into estate planning.

Conclusion

Practitioners who have clients that receive windfalls can provide valued advice on handling the new-found wealth. Consider not only federal income tax implications, but also state and local taxes.

Thursday, July 21, 2016

Investors, start planning now for the NIIT - Net Investment Income Tax

Year’s end may seem a long way off. But if you’re an investor, you’d be smart to start projecting your income for the rest of the year right now. Why? In a word, taxes — namely, the net investment income tax (NIIT).
CONFRONTING THE THRESHOLDS
The Affordable Care Act of 2010 created two additional taxes under Medicare to help offset the act’s costs. One was an additional 0.9 percent tax on wages and self-employment income that exceed specified thresholds. For the purposes of this article, let’s focus on the other: the NIIT, a 3.8 percent tax on net investment income to the extent a taxpayer’s modified adjusted gross income (MAGI) exceeds certain thresholds.
Those thresholds are $200,000 for single filers and taxpayers filing as heads of household, $250,000 for married taxpayers filing jointly and $125,000 for married taxpayers filing separately. For most people, MAGI is equal to AGI. One notable exception, though, is for certain U.S. citizens or residents who live abroad and have foreign earned income. Note that these thresholds may, in effect, impose a “marriage penalty” on certain couples by imposing the NIIT where it wouldn’t apply if they were unmarried individuals.
DEFINING INCOME
“Investment income” can mean a variety of things. It includes, in general, gross income from interest, dividends, annuities, rents and royalties. The term can also apply to net capital gains. Also qualifying is trade or business income that is derived from either a “passive activity” under IRS rules or trading in financial instruments or commodities.
Investment income doesn’t include distributions from IRAs, pensions, 401(k) plans or other qualified retirement plans — but distributions from these plans can trigger additional Medicare taxes on net investment income by increasing your MAGI.
MAKING THE RIGHT MOVES
Once your total investment income is determined, deductible investment expenses are subtracted to arrive at net investment income. There are, however, several potential strategies you can implement to reduce or eliminate the 3.8 percent tax on net investment income.
First, you might execute a Roth conversion. If you have substantial balances in a traditional IRA, 401(k) or other qualified retirement plan and you’re considering a Roth conversion, now may be the time to do it. While doing a conversion and increasing your 2016 income may mean that you’re subject to the NIIT this year, future distributions from the Roth IRA are excluded from MAGI, reducing your exposure to the 3.8 percent tax in those years.
Remember, too, that the conversion amount will be included in your gross income this year and subject to tax, but not the 10 percent early withdrawal penalty. Also keep in mind that you’ll have to wait the requisite five years after the conversion to distribute the converted funds or you’ll face a 10 percent penalty.
If you have highly appreciated securities that you’d like to divest, consider the NIIT implications. Perhaps selling all at once this year is advisable because, even with the sale, you won’t be subject to the NIIT. Then again, waiting until next year, or selling some this year and some next year, may better reduce or avoid the NIIT. Whatever you decide, be mindful of the investment risk associated with holding an asset.
Installment sales can also help mitigate the NIIT’s impact. For sales of appreciated assets, consider using the installment method to spread the gain over several years. Depending on your situation, this may allow you to keep your MAGI below the threshold and avoid the 3.8 percent tax or at least minimize your exposure.
Also look into harvesting losses. In years in which you recognize large capital gains, you might want to sell assets in which you have losses. You can use the losses to offset the gains, reducing your investment income and your MAGI.
MANAGING THE IMPACT
The good news is that because the threshold for the NIIT is based on MAGI, strategies that reduce your MAGI could also help you avoid or reduce NIIT liability. Making retirement plan contributions is one example.
This has been a general discussion and is not intended as advice. Tax matters can be complex so seek the advice of a qualified professional before making decisions.

Wednesday, July 20, 2016

How Much is the Child Tax Credit?

The child tax credit is worth up to $1,000 per child that is under 17. To be eligible to claim this credit your child or dependent must first pass all of the following tests:

Must be 16 or younger on the last day of the year
Must be a US citizen, US national, or a resident alien
Must be claimed by you as a dependent
Must be related to you by blood, or step relationship, or legally adopted child/foster child
Must have resided with you for more than half of the year (special rules apply for special circumstances such as divorce)
You must have provided them with more than half of their support
Child tax credit What is the Child Tax Credit Maximum?

The credit is worth a maximum of $1,000 per child
Until 2017, the Child Tax Credit is partially refundable if your earned income was more than $3,000.
The Child Tax Credit decreases if you have an AGI of $75,000 ($110,000 for married filers and $55,000 for separate filers).
You must include foreign income exclusions when calculating your income for this specific credit.


The Additional Child Tax Credit

The Additional Child Tax Credit (ACTC) is a refundable credit that taxpayers who receive a larger child tax credit than their income owned receive if their earned income is greater than $3,000.

Form 1040 (Schedule 8812) helps determine if you qualify and the amount of the credit that you will receive. If you e-file your return the software will do all of the math for you.



Dependents on Multiple Returns

Only one taxpayer or couple can claim the child for the Child Tax Credit and ACTC. If more than one person tries to claim the child, the IRS will determine who gets to claim the child using the tiebreaker rules.



Child Related Tax SavingsOther Child Related Tax Savings

Exemptions – Receive the standard exemption for each child that qualifies.
Child and Dependent Care Credit – You could deduct up to $3,000 for one dependent, or up to $6,000 for more than one with this credit.
Adoption Tax Credit – If you have already adopted or are in the process, you may qualify for this credit.
Filing Status – If you are unwed and your child resided with you for more than half of the year, you could qualify for a higher standard deduction and lower tax rates with the Head of Household filing status.


Claiming the Child Tax Credit

When you eFile with a service such as Turbo Tax, you automatically are asked the right questions to determine if you qualify for the Child Tax Credit.

Tuesday, July 19, 2016

4 Questions to Ask Before Passing Down the Vacation Home to Your Kids

FROM http://time.com/money

First step: Make sure your heirs actually want it.


As you’re basking on the deck at your lake house this summer, or tossing a Frisbee in front of your beach condo with your grandkids, you may start to consider: Will my family continue to enjoy this getaway after I’m gone?

If you want to keep your vacation house in the family for future generations to use, it’s time to start planning. Failing to take the right steps to ensure a home’s future ownership — ideally as part of an overall estate plan — can lead to painful family disagreements.

Ask yourself the following questions to ensure you’re making the best decision for your family.

Who Actually Wants It?

A long-held second home can hold strong sentimental value; many couples want to leave vacation homes to their children (or other family members) as a way to preserve the associated memories. Perhaps that’s why many overlook one critical step: finding out whether family members actually want to own it.

For heirs, practical issues could include how far they’ll have to travel to visit the home and whether their income can support upkeep, taxes, and other costs. Then there’s another factor: If that ski condo would make up the bulk of their inheritance, some of your kids might actually prefer, or require, a more liquid asset.

What’s the Best Form of Ownership?

There are different ways to leave a vacation home to your children or family members. One of the simplest methods is to leave the vacation home outright in your will to the particular children or family members you wish to inherit it. Your estate would transfer the deed to your children, and each of the people you cite will own an equal portion.

But what’s simple for you may bring added complexities for your heirs — and, in some cases, cause disagreements and resentment. Equal ownership means all owners would have a say in all decisions concerning the home — when each can use it, whether to rent it out, whether to sell it and for what price, and what projects to invest in to fix it up, for instance. And each owner would bear an equal responsibility to pay for all associated costs.

Another option is to pass down your vacation home through a trust, which can help alleviate some of the tension caused by outright ownership. You’d select a trustee to be in charge of all decisions concerning the home, and your heirs would become the trust’s beneficiaries.


What that means, in practice: They’d have the right to receive rents (if the home were rented) and be able to use the home according to the terms you specify. But the trustee would make the ultimate decisions concerning the property, and be empowered to referee any disputes, helping bring them to a civil conclusion.

The cost of setting up such a trust can vary, but budget at least $2,000 to $3,000. The trustee may also be entitled to annual compensation once he or she takes over, although the amount can vary widely, based on experience and state law.

Who’ll Pay for Upkeep?

Vacation homes can be costly, and your children or other heirs might not be able — or willing to cover house expenses with their own money. So one key question to consider is whether to set aside additional money to cover the home’s ongoing costs. After all: If your kids will need to rent the house in order to afford it, they probably won’t be able to use it during prime vacation times.

That’s why many families who set up a trust leave extra money to cover operating costs. If you can manage that, add up how much it will cost to operate the vacation home for a year; include things like real estate taxes, insurance, and utility bills. Multiply that by the number of years you would like the trust to be able to support the home. Most people pay for at least five years’ worth of expenses — enough to pay for the home in the short term, during which time the children can determine if they actually want to keep it, and which really want it.

What’s the End Game?

Even if you’d like the vacation home to stay in your family for years, it may not be possible. As time passes, your heirs’ families may grow, leaving more people to share the home — many of will be related to each other only distantly — and less time per descendant.

If this seems like a problem your family might face, you can draft your trust so that a sale of the house can be “forced” upon the occurrence of a certain event. For example, let’s say a majority of the trust beneficiaries want the vacation home to be sold. In that case, the trust could give each beneficiary the right of first refusal to purchase the house for its appraised fair market value. And if no child wishes to purchase the home, the trust can require that the home must be sold to a third party, and the net proceeds divided among your descendants as you wish.

Owning a family vacation home is a great privilege, and planning to pass it on to your family is a great way to ensure that generations to come have the opportunity to enjoy it. However, before you do so, it’s important to take steps to assess whether it is in fact the right thing for your family to inherit, and how it would be cared for over the years.