Your family vacation home — the lake house, the ski cabin, the beach cottage — likely holds decades of memories. But it may also be set up for a complicated financial future.
About $105 trillion is expected to pass between generations by 2048, and real estate like vacation homes is part of that transfer.1 Yet passing down a vacation home is often the most fraught decision families face, because the property can carry both emotional weight and ongoing costs.
If you’ve spent years building wealth and creating traditions at a place your family loves, you may want to pass it on without turning it into a source of conflict. Vacation home estate planning should start with a conversation, not a document. And the right plan depends on your family, your property, and your goals.
Start with the question nobody wants to ask
Before you choose a structure, ask your children whether they actually want the property. Your emotional attachment may not match theirs. Two of your children may treasure the place, while one may prefer the cash. Or one may live 2,000 miles away and feel burdened by the obligation.
Have the conversation early and give everyone permission to say no without treating it as a rejection of the family. Try asking, “What does this place mean to you?” and “Would you want to keep it, or would you rather we plan differently?” Their answers can shape everything that follows.
Choose a structure that fits your family
When you know who wants in on the property, you can talk about how to hold it. Estate planning for vacation homes usually comes down to two types of structures: a trust or a family LLC for real estate.
Trust
A trust can centralize management and keep the property’s value out of your heirs’ taxable estates. A revocable living trust lets you retain control during your lifetime, while an irrevocable trust — such as a qualified personal residence trust (QPRT) — can remove the home’s future appreciation from your estate for transfer-tax purposes.
You might be tempted to gift the vacation home to your children now, while you’re alive, to move it out of your estate. But gifting a house during your lifetime carries a significant tax trade-off. When you give away real estate as a gift, your heirs inherit your original cost basis — meaning if the property has appreciated significantly, they could face a large capital gains tax bill when they eventually sell.
If instead they inherit the property at your death, they receive a stepped-up basis, meaning the tax basis adjusts to the property’s fair market value on the date you die. That step-up can eliminate decades of built-in appreciation from the capital gains equation.
A QPRT offers a middle path whereby you transfer the home into the trust now, retain the right to live in it for a set term, and any appreciation during that term passes to your beneficiaries outside your taxable estate. The trade-off: If you don’t survive the trust term, the property returns to your estate and you lose the benefit.
Family LLC for real estate
An LLC offers liability protection and an operating agreement you can amend as the family grows. It can be well-suited when the property is rented to third parties or when liability is a concern. The operating agreement can restrict ownership to family, define management roles, and set rules for transfers. Your family might consider combining structures — placing the property in an LLC owned by a revocable living trust — to capture the benefits of both.
The right option for your family depends on whether the property generates rental income, how much liability exposure exists, and how many family branches are involved.
Fund the ongoing costs before they become a burden
Taxes, insurance, and upkeep on the real estate will outlive you. A vacation home that sits empty still costs money, and those costs can strain family relationships fast.
Inherited homes accounted for a record 8.85% of all U.S. single-family residential property transfers in 2025, and heirs may not anticipate having to spend ongoing money on the property after the owner dies.2
Your second home estate planning strategy should account for ongoing ownership costs from the start. Consider endowing the property through a dedicated fund within your trust or making the property productive enough to cover its own expenses.
If you ask heirs to share costs, decide in advance what happens when one of them can’t — or won’t. A well-funded maintenance reserve can help prevent a scenario such as one sibling paying the bills and resenting the others for it.
Write the rules now
Figuring out how to manage a family vacation home means writing the rules now — even if it’s emotionally difficult or seemingly boring. The most effective plans usually address the details that feel tedious today but prevent disputes tomorrow. How are weeks divided? Who will approve a new roof? How are disagreements settled?
An operating agreement or trust document should cover scheduling, upkeep decisions, capital improvements, and a process for resolving conflicts. These rules can help give your heirs a structure instead of chaos.
Plan the ending from the beginning
Not every heir may want to stay involved with the home forever. A right of first refusal gives family the first opportunity to buy out a sibling or other heir. Further, an agreed valuation method such as a neutral appraisal can mean a future sale is a transaction, not a rupture.
Think of it as building an exit ramp. Buyout provisions, promissory notes, and trust assets that can be used to buy a family member’s interest can all let someone leave gracefully without a legal fight.
Get started
Keeping a vacation home in the family touches estate planning, tax strategy, insurance solutions, and investment management. When those disciplines are integrated into one team, your plan isn’t managed across three outside professionals who likely don’t talk to each other.
Our estate planning professionals collaborate directly with wealth advisors, tax specialists, and financial planners to help you build a coordinated plan — one that aims to reflect your family’s goals and adapts as your family grows.
Are you ready to start the conversation about your family vacation home or other estate planning concerns?
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A QPRT is an irrevocable trust that lets you transfer a personal residence — including a vacation home — to your beneficiaries at a reduced transfer-tax cost. You retain the right to live in the home for a set term of years. If you outlive the term, the property passes to your beneficiaries, and any future appreciation is removed from your taxable estate. If you don’t survive the term, the full value is included in your estate.
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A family LLC holds title to the vacation home, and family members hold ownership interests instead of having direct ownership. The operating agreement defines management roles, restricts transfers to keep the property in the family, and establishes rules for use and upkeep. The LLC provides liability protection, especially when the property is rented to third parties. Parents can gift ownership interests over time to transfer ownership while retaining management control.
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The right choice depends on your goals. A trust centralizes management and can remove the property’s value from your taxable estate. An LLC offers liability protection and a flexible operating agreement you can amend as the family grows. Many families combine both — placing the property in an LLC owned by a revocable living trust — to capture the benefits of each structure.
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A QPRT can be worthwhile if you expect the property to appreciate significantly and you’re confident you’ll outlive the trust term. The strategy freezes the property’s value for transfer-tax purposes at the time you fund the trust, and any future appreciation passes to your beneficiaries without transfer taxes. If you don’t survive the term, the full value returns to your estate. The decision depends on your age, the property’s value, and your overall estate plan.
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Mercer Advisors offers estate planning coordination alongside tax and financial planning to help avoid your vacation home plan from stalling between separate professionals. You can arrange a complimentary financial planning consultation to discuss your family’s goals and how your estate plan can fit with it.
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Transferring a vacation home to a trust typically involves retitling the property in the name of the trust, updating your deed, and notifying your mortgage lender and insurance company. The process varies by state and depends on whether the trust is revocable or irrevocable. An estate planning specialist should handle the transfer to help ensure it’s done correctly and that you don’t inadvertently trigger a due-on-sale clause or lose insurance coverage.
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A trust is a legal arrangement where a trustee holds and manages the property for the benefit of your beneficiaries. It can avoid probate and remove value from your taxable estate. An LLC is a business entity that holds the property, provides liability protection, and is governed by an operating agreement you can amend. Trusts are typically recommended for tax planning and probate avoidance; LLCs are often advised for liability protection and flexible governance.
1“What Wealthy Parents Need To Know About Giving Real Estate to Kids.” CNBC, Aug. 23, 2025.
2“Inheriting a Home Can Leave Siblings With Financial Headaches — How To Avoid Costly Mistakes.” CNBC, Aug. 6, 2026.
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