A family vacation home is a place of fun, memories and refuge for generations of friends and relatives. But when the matriarch or patriarch who bought the home dies, it’s not uncommon for the same family members to go to war over visitation rights and ownership of the property, which can be worth a significant sum.

This is why it’s important to include any vacation property as a part of the buyer’s estate planning. According to the National Association of Realtors’ 2009 analysis based on U.S. Census data, there are 7.9 million vacation homes and 41.1 million investment units in the United States, compared with 75 million owner-occupied homes.

Such significant property can mean significant discord when there’s a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That’s why it’s important for experts in financial planning, tax and estate issues to be brought into what might seem as a fairly minor investment issue. Some suggestions:

Do a market analysis: How valuable is the family vacation home, anyway? It might make sense before you talk to any of your heirs to appraise the property and launch a competitive marketing analysis to see what other homes in the immediate area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it’s fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at which time they’ll have full control over the choices that get made.

Discuss scenarios with your team of experts: Again, it’s important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you’ll have more to discuss when you finally bring it up with your heirs.

Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. Eventually that can result in a more formal meeting when it’s time to start making decisions. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is one emotional investment issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.

Start developing the plan: Once you reach consensus with all relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they’re alive so surviving heirs don’t have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens. It’s good to get advice on what a sensible buyout price is ahead of time. Because it won’t include traditional selling costs, family members might be able to buy the property at a premium.

Consider different ownership structures: Homes that older family members want to  keep in the family might consider a limited liability company (LLC) as an ownership vehicle for the vacation home. LLCs can offer lawsuit protection from creditors and users, they’ll keep the property in the family and they will help the owner set up a structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted.

Have some fun: Don’t let the process of handing down the property or discussing future ownership detract from the property’s original purpose – to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

For parents with investment dollars to spare in deflated college-area real estate markets, there’s never been a better time to invest in condos or single-family homes to house a student during their undergraduate or graduate years while providing tax breaks and potential investment appreciation for the folks.

But, it’s very important to consider pros and cons because the potential rewards of buying housing for a student carries many risks. Over the past decade, the once-galloping real estate market made condo and home purchases in college areas attractive to parents looking for an actual return on the room and board expenses they would otherwise throw away to their kids’ schools. With the double-digit home appreciation of the 1990s, parents looked at buying property as a way to essentially house their kids for free.

Today, in most markets, home values have fallen, which makes for a better investment proposition. But it’s critical to talk to tax and financial experts such as a CERTIFIED FINANCIAL PLANNER™ professional. As a starting point, parents need to consider the following:

How responsible is your kid?

If your kid thinks you’re buying them a crash pad or party palace, you’re already in trouble. He or she will have to be responsible enough to act as an onsite landlord making sure the interior and exterior of the property stay in livable and salable condition. That’s not a job that every child can handle, so unless you can afford housekeeping and maintenance help, any doubts on your part should dissuade you from such a purchase. Also, if you have ANY suspicions that your child might drop out, take a break or transfer from her chosen school, do you want to risk becoming a landlord yourself or paying for an empty property?

How’s your cash flow?

If you are already a homeowner, you know what owning a home costs – mortgage payments, property taxes, insurance, homeowners or condo association dues, maintenance costs – can you cover these things in a remote residence (including emergencies) without batting an eye? And keep in mind those costs are going to be considerably higher for your kid’s property in downtown Chicago than they would be in Omaha. Also, keep in mind that it will cost considerably more to insure this property because even though it’s your kid, you’ll essentially need to be insured as a landlord based on the damage that can occur in rental properties.

When would you have to sell?

Most people think in terms of owning a kiddie condo for four years – the term of a standard degree. A decade ago, that was a relatively easy commitment to make as housing prices were skyrocketing and buyers always seemed to be circling. Today, however, owners have to consider that it may take them considerably longer to sell the property at a profit with necessary investments in maintenance along the way, and a big 5 to 6 percent slice off the top to pay a selling broker.

Location, location, location:

Buying a property in the immediate vicinity of campus might be great for your kid who rolls out of bed late for class, but bad for you if you’re expecting your property to appreciate. In most markets, on-campus real estate is notoriously low on appreciation (think how you’d feel buying next door to Animal House). This is why investors do better buying in established, off-campus residential areas or developments that are near but not on campus. Your child will have to miss the experience of living with their peers, though, and that’s a big consideration.

Can the property do double duty?

Students are pretty possessive about their space and privacy in college, which is why you don’t see many parents crashing in their kids’ dorm rooms for the weekend. But if you have regular business or vacation plans in the city where your kid goes to school, see if that might be one more incentive to invest as long as it doesn’t cramp your style or your kid’s.

Might your investment become your kid’s investment?

Again, this requires sensible planning and the full cooperation of a responsible child, but if your child is planning to stay in the city where they’ve graduated, parents might consider a plan to sell the property to their kids at graduation. This could give the grad a great start on their finances during their first earning years.

November 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins, CFP, CLU, AEP, a local member of FPA.