September 9, 2021
Timeshares have come a long way since they first arrived in the real estate market back in the ’70s. In the early days of timeshare ownership, high-pressure sales tactics, exceedingly vague contracts, and inflexible scheduling policies caused many people to quickly regret such purchases. Over time, however, timeshares have become more consumer-friendly with greater transparency in the terms of the contract, more flexibility in scheduling timeshare weeks, more diversity in the location of the vacation properties, and less pressure during the sales experience. That is not to say that all timeshare companies are ethical and transparent. There are plenty of modern-day examples of abuses within the timeshare industry. However, it is not uncommon to find very happy timeshare owners who have obtained great value out of their timeshares and view them as highly valuable and desirable property in their estates.
When it comes to your estate planning though, how should you handle your timeshare? If you have a revocable trust, should you transfer ownership of the timeshare to your trust? Should you instead continue to hold it in your name, or jointly with another family member? What if you do not use it very often and, despite your efforts to get your adult children to use it, it mostly just goes unused? Here are a few things to consider when deciding how to plan for your timeshare.
The Case for Owning Your Timeshare in Your Trust
Suppose you find significant value in timeshare ownership. It may be worth the effort to purchase the timeshare in the name of your revocable living trust initially. If you obtained ownership before the formation of your trust, however, you may want to consider retitling the contract in the name of your living trust. In some states, and depending on the timeshare contract, you may be an owner of rights in real property. This is important to know because in most states if you die owning real property, it will be subject to an often timely and perhaps expensive probate proceeding for it to pass to your heirs unless it is owned through a probate avoidance tool such as a living trust, joint ownership with rights of survivorship, or payable on death or transfer on death designation. Owning your timeshare in your revocable trust is one of the most common ways to ensure that your named trust beneficiaries will have the right to either use or take ownership of your timeshare after you are gone without needing to utilize the probate court to do so.
When you first purchase a timeshare, it is crucial that you understand the requirements to transfer it at your death. If the person selling the timeshare to you cannot with certainty tell you how you can transfer the timeshare (and show you language in the contract supporting their answer), you should seek the counsel of an experienced timeshare or real estate attorney before signing the contract. This distinction can make a difference of thousands of dollars of probate costs and frustration upon your death or disability. You will also want to check your contract or with the timeshare management company to determine whether there will be a fee assessed for the transfer of your timeshare from your name to the name of your trust. Some timeshare companies charge steep fees for transfers like these.
Ultimately, the decision to title your timeshare into the name of your trust is a very fact-specific decision. Asking questions and reading your timeshare contract carefully can help you avoid costly mistakes.
Reasons Not to Title Your Timeshare in the Name of Your Trust
Maybe you have used your timeshare frequently in the past, but now, for health reasons, you just cannot get away as you used to and no one in your extended family seems to ever want to use your weeks either. In that case, you might consider trying to sell the timeshare before you pass away. One of the main complaints people have with timeshares that they no longer use is that most, if not all timeshares, have annual maintenance fees or dues assessed to the owners. Some consumer reports estimate that the average timeshare maintenance fees are $800 to $900. In addition, special assessments can be levied on owners when the property incurs damage from a natural disaster, fire, or other mishap, or needs maintenance. Special assessments can often add thousands of dollars a year to the cost of ownership. If you are not using the timeshare regularly, these extra costs can be very burdensome with little benefit.
If your living trust owns the timeshare, your trust beneficiaries will inherit these maintenance fees and special assessment obligations that the trust is bound to by contract. If none of your beneficiaries want the timeshare, your trustee will have to try to sell the timeshare on the open market. Thus, you should be aware that, even today, the market for timeshares is very limited. There are a handful of websites where you can list your timeshare for sale or attempt to rent out your weeks; it is important to note, however, that it is rare for people to sell their timeshares for even a small fraction of their original purchase price.
Moreover, it can be very difficult to simply walk away from your timeshare while you are alive. Many timeshare companies are experts at pressuring timeshare owners to pay their annual maintenance fees through threats of litigation and using collection companies. As a result, if you feel that your timeshare no longer provides the value that it once did, and if your children or other family members are unlikely to want to inherit it once you are gone, you might consider leaving it out of your living trust entirely. Many timeshare contracts have provisions where the contracts terminate at the death of the owner. If your trust owns the timeshare, however, such a termination on death provision would likely not be applicable because a trust cannot die and the trust would continue to be obligated for the maintenance fees.
Even if your timeshare contract does not terminate at the death of the owner, from a practical standpoint, if the only asset in your name was the timeshare (because all other assets passed via the trust or beneficiary designation), and your family had no interest in inheriting the timeshare, then the timeshare company would have to initiate a probate proceeding to seek payment from the estate for the unpaid maintenance fees. Doing so would not likely benefit the timeshare company, leading them to abandon any claims against the estate for anything more than a reversion of the timeshare’s title to the company.
Owning timeshares can provide significant benefits for those committed to using them regularly and who know how to maximize the value for themselves and their families. Under circumstances in which a timeshare can continue to benefit a family and successive generations, it may be wise to title ownership of your timeshare in the name of your trust. However, when timeshares become more of a liability than an asset to a family, it is important to review your obligations under the timeshare contract, perhaps with the help of your attorney, and determine whether owning your timeshare in your trust is a good idea. It may not be the right thing to do. Remember, timeshare contracts can vary widely in their terms and obligations. If you are unsure of your rights and obligations under your timeshare contract, seek the help of your attorney to understand the best course of action for your family when it comes to your estate planning.