This Type Of Property Is One Of The Worst Assets To Inherit

Vacation homes might seem like a dream inheritance, offering families a convenient getaway and even the possibility of saving money when traveling. But they may be among the worst types of assets to pass down. While these properties may have family history, they could come with ongoing expenses like property taxes, insurance, maintenance, and sometimes mortgage debt. All this can outweigh its value to heirs. 

For example, depending on how the property is transferred, the heir may face capital gains or inheritance tax if they live in a state that imposes them. Those costs can range from 15% to 40% of the property's value, depending on the type of tax. Meanwhile, repairs and general upkeep can run between 1% and 3% of the property's value per year, according to Bankrate.

Beyond the financial strain, vacation properties can also fuel conflict among heirs. If left to multiple family members, there can be confusion over who is responsible for expenses and other factors like how often the property can be used or whether it should be sold altogether. Without clear planning, what was intended as a family gift can easily become a budget drainer and a possible source of resentment and division.

While a vacation home may rank with timeshares and family businesses as the worst type of inheritance, with the right planning, it doesn't have to end in financial strain or family conflict. Although uncomfortable, having inheritance conversations early is essential. This can help determine whether the heirs want to maintain the property in the long term; otherwise, it may be wise to sell while the housing market is hot.

If there is interest in keeping the vacation property in the family, creating a co-tenancy agreement can resolve future disagreements. A co-tenancy agreement outlines specific responsibilities when two or more people occupy a residence. According to Kiplinger, with the vacation home at play, a co-tenancy agreement should specify the rights and responsibilities of each heir after they take ownership. Kiplinger also notes that it may be a wise move if the testator leaves behind liquid assets solely to pay for the ongoing costs of the vacation property instead of leaving the burden to heirs.