Don’t Get (Sun)burned: Top 5 Considerations When Purchasing a Vacation Home

Don’t be blinded by the sun reflecting off the dancing blue water; there’s more to consider when purchasing a vacation home than where you like to vacation. Here, some sunscreen in the form of a little knowledge—to keep you from getting burned.

1. Know your costs…all of them.

When considering the costs of a second home, don’t focus solely on the purchase price. There may also be ongoing homeowners or condo association fees; fees for services like trash removal and landscaping; and of course, furnishings, appliances, utilities and insurance. Also, remember Murphy’s Law and budget not only for maintenance, but also repairs.

2. Don’t forget Uncle Sam (he won’t forget you, either!)

Property taxes are another embedded cost and if you’re receiving rental income, you may need to pay income taxes as well. On the upside though, you may be eligible for some income tax deductions for things like mortgage interest, property tax and insurance premiums, depending on use. You should vet the idea of a vacation home purchase with your tax advisor to determine how your specific intended usage will affect your tax situation.  

3. Protect your investment.

View of the water? Might be in a flood plain. Minutes from the slopes? What’s the snow load on your roof? Not to rain on your parade (or week at the shore), but please make sure you have sufficient insurance coverage, including the appropriate riders if you’re in an area prone to natural disasters, AND an umbrella policy, especially if you have renters. Invest in an alarm system or monitoring service, since empty homes are more susceptible to break-ins. Even a minor leak can become a catastrophe if you’re not home for days at a time.      

4. Think before you take title.

Purchasing a property in your name, or jointly with your spouse, is the simplest form of ownership; however, the addition of a second home (and the income therefrom) could grow your balance sheet in a way that effects transfer taxes and maybe even the overall outcome of your estate plan. Revisit your estate planning documents to ensure there are provisions sufficient to deal with the disposition of your new asset and talk to your attorney to make sure you’re not missing anything. 

5. Take the long view.

If you buy your vacation home through a business entity you create (like a limited liability company), you may find yourself better positioned to achieve a tax efficient transfer of wealth later on down the road. If you suspect that your kids will want to return every year with the grandkids to make magical summer memories of their own, holding the home in an entity can facilitate ownership between numerous family members. It may also provide some level of protection from liability and the entity’s operating agreement will set forth rights and responsibilities (and dictate a procedure for resolution of disputes) as between those holding ownership interests. 

If you have any questions, don’t hesitate to contact your Relationship Team or email us at Top5@glenmede.com.

Glenmede’s Top 5 is intended to be an unconstrained review of matters of possible interest to Glenmede Trust Company clients and friends and is not intended as personalized investment, estate planning, tax or legal advice. Investment and wealth advice depends on many individual facts and circumstances we cannot account for here. For legal and tax advice, consult your lawyer or accountant. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information gathered from other sources is assumed to be reliable, but accuracy is not guaranteed. Outcomes (including performance) may differ materially from expectations herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Please contact your Glenmede representative to discuss the applicability of any matter discussed herein.