Whether it’s a beachside getaway in Mission Bay, a ski cabin in Big Bear, or a desert retreat in Palm Springs, owning a vacation or second home is a dream come true for many San Diegans. These properties can create lifelong memories, offer potential rental income, and serve as valuable long-term investments. But while they may provide rest and relaxation, second homes also bring added complexity when it comes to estate planning.
Below, our San Diego estate planning lawyer outlines key considerations every vacation or second home owner should factor into their estate plan to protect the property—and the people—who matter most.
Who Will Inherit the Property?
Unlike your primary residence, vacation homes often carry emotional value and shared family memories. That sentimental connection can make decisions around inheritance more sensitive—and sometimes more complicated. If you plan to pass the property to multiple heirs, such as your children or siblings, it's essential to consider how they will jointly manage the home.
Will they take turns using it? Will one buy out the others? Will it be sold and the proceeds split? These are decisions that can spark tension if left unaddressed. Including clear instructions in your estate plan, and discussing your intentions with your loved ones in advance, can help prevent confusion, reduce the risk of future disputes, and preserve family harmony.
Ownership Structure Matters
The way your vacation home is titled significantly impacts how it is transferred after your passing and how it’s treated from a tax and liability perspective. Some common property ownership structures include:
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Living Trust: Placing the property in a revocable living trust can help avoid probate, reduce court involvement, and ensure a smooth and private transfer to your beneficiaries. It also allows you to maintain control during your lifetime while providing clear guidance for your heirs after you’re gone.
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LLC (Limited Liability Company): If the property is used as a rental, held with other family members, or located in another state, an LLC can provide liability protection and streamline management. It also allows for the creation of operating agreements that define how decisions are made and what happens if one owner wants out.
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Joint Tenancy or Tenants-in-Common: These forms of ownership come with specific rules around survivorship and share distribution. Joint tenancy typically allows the surviving owner(s) to automatically inherit the property, while tenants-in-common ownership may pass the interest to heirs under a will or trust. Each option has tax implications that should be reviewed with your estate planning attorney.
Choosing the right structure depends on your goals for the property and your family’s unique situation.
Out-of-State Property Adds Complexity
If your second home is located outside California, it could be subject to ancillary probate in the state where it’s located. That means your loved ones may need to go through the probate process not only in California, but also in another state—adding time, expense, and legal complexity during an already emotional period.
Fortunately, this can often be avoided. Placing the property in a California-based living trust or holding it in an LLC can allow your estate to bypass probate in both states, offering a more efficient and cost-effective solution for your heirs.
Planning for Expenses and Upkeep
A vacation home comes with ongoing responsibilities—think maintenance, utilities, HOA fees, insurance, and property taxes. If your plan is for your heirs to retain the property, your estate plan should include provisions for how these costs will be covered.
You may want to allocate specific assets to create a maintenance fund or direct proceeds from life insurance or other investments to help cover future expenses. Without a financial plan in place, your heirs could find themselves struggling to keep the home or forced to sell it, even if that wasn’t your intent.
Rental Income and Tax Considerations
If your second home is used as a short-term or long-term rental, this introduces additional financial and tax planning considerations. Your estate may be responsible for reporting rental income, capital gains if the property is sold, and depreciation recapture. These can all impact the amount your heirs ultimately receive.
Working with an estate planning attorney—alongside a CPA or financial advisor—can help coordinate your plan to minimize taxes and maximize the benefit to your beneficiaries. You can also provide guidance on whether the property should continue being rented or sold, helping your heirs make informed decisions aligned with your wishes.
Use a Letter of Instruction
Sometimes, the legal documents don't tell the full story. That’s where a letter of instruction can be incredibly valuable. While not legally binding, this letter allows you to express your hopes for how the vacation property should be used and maintained.
Whether it’s a desire to keep the home in the family for generations, guidance on managing a rental calendar, or even a wish to preserve family holiday traditions, a letter of instruction adds a personal touch that can guide your heirs emotionally as well as practically. It also offers a great way to share your values and vision without complicating your trust or will.
Don't Leave Vacation Dreams to Chance
Your vacation home is more than just a piece of real estate—it’s a place of connection, joy, and legacy. Protecting it through thoughtful estate planning ensures that your investment and your intentions are honored.
Whether you're buying your first second home or have owned one for years, now is the right time to review or update your estate plan. Our San Diego estate planning team is here to help you navigate the legal, financial, and emotional aspects of planning for your vacation home—so you can relax knowing your legacy is secure.
