Donating Vacation Homes
Submitted by American Endowment Foundation on July 5th, 2023With the summer vacation season here, many clients think back to past summer getaways with their families. Some of those memories may have been generated at family vacation homes that have been owned and enjoyed by one or more generations of the same family.
However, an article in InvestmentNews several years ago touched upon an issue that has become common; past memories of vacation home fun is no guarantee of future interest. More grandparents and parents are discovering that their adult children or grandchildren have no desire to have the family vacation home passed down to them.
A wealth planning expert in the article said, “There’s this aura around a vacation home because it’s where many good memories are made. Many parents are surprised and disappointed to learn that their kids don’t want anything to do with the home.” What to do with a vacation home can become a source of discord in a family. Tracy Craig, an attorney quoted in the article states, “The vast majority of clients are not 100% certain how the next generation feels about the vacation home. If it’s not dealt with, a vacation home can disrupt sibling relationships and people can end up annoyed and resentful with each other, which is not what parents intended.”
This issue of what to do with the home becomes more acute as the parents or heads of the family are less able to use the vacation home due to increasing age, fragility, lack of mobility, illness or concern about the location of or quality of health care facilities near the home.
One way to alleviate these issues is to use the property’s value to build a charitable legacy. Many of those who support charitable causes do so with direct cash payments on an after-tax basis. A wiser, tax-efficient means toward future charity may be to donate the vacation home or property.
Because of the instability of the markets in recent years, many clients have been looking for highly appreciated assets that they can donate. Real estate has remained very strong after years of increasing in value. As a result, different types of real estate are being donated including primary and secondary homes, commercial properties, and raw land. These real estate contributions to donor-advised fund sponsors have enabled clients to increase the amount that they are able to grant to their favorite charities now and in the future.
As with other donations of illiquid assets, real estate donors may be eligible for an immediate federal tax deduction equal to the Fair Market Value (FMV) of the entity donated to AEF, up to 30% of the adjusted gross income (AGI). If the FMV of the donation is greater than 30% of AGI, the excess can be carried forward for five years. Although the path to turning real estate into charitable goodwill can seem complex, AEF and its partners allow for management of the complete real estate donation cycle.
Donating a family’s vacation home or property that is not going to be used or wanted in the future can help form the basis for a charitable legacy for the family. As the vacation home may have been able to unify the family and create lasting memories, the charitable dollars generated by the donation of the property can help unify the family in the future as together they can decide which causes and charities to support.
For additional information, please contact us or call at 1-888-966-8170.