The Challenges of Timeshare OwnershipBeau Ruff
We have all been there. We take a glamorous vacation to Florida or Hawaii or Arizona or Mexico, and we are presented with the deal of a lifetime: a timeshare. Proponents of the timeshare declare it is an affordable way to own a slice of a dream property. Furthermore, often the owners can exchange their ownership to allow them to visit other luxury properties at other locations, domestic and abroad. It sounds like an easy decision to invest in the property for your own happiness and the joy you are surely to bring to family and friends that visit you at the timeshare or those that are able to themselves utilize your timeshare.
This article explicitly does not explore whether the purchase of a timeshare is a good idea. It won’t explore the value proposition. It won’t explore the utility of the purchase. It won’t explore the general feeling of happiness and joy that the ownership may bring you and your family. It won’t explore the cost of continued ownership through maintenance fees. Instead, this article will explore the hidden challenges of timeshare ownership as a person develops his or her estate plan and attempts to transfer this asset after death.
So, what is the complexity created by a timeshare? In general, a person must go through some administrative process upon death – “probate” for ease of discussion (there are other potential processes that might apply but this article is not parsing the various administrative possibilities at death). Accordingly, a person must go through probate in the state where the person resides and in any state where the person owns real property. “Real property” is any property that is of a non-movable nature: land, house, condo, building, etc. It is distinguished from personal property. Most timeshares provide the owner with a deeded, fractional ownership of a piece of property. For example, the buyer might purchase a one-week timeshare in Arizona at a golf club. More often than not, the buyer is buying a 1/52nd ownership of the real property. The buyer accordingly receives a deed of the 1/52nd ownership and therefore owns real property in Arizona.
Now, the same buyer meets with the estate planning attorney and discloses the fact that the buyer owns “real property” in Arizona but lives in Washington state. The buyer now has several options: (1) Do a standard Washington will with the understanding that the client will need to go through probate in Washington and also go through probate in Arizona upon each of the death of the buyer and the buyer’s spouse (for argument’s sake we assume the cost of such probate in Arizona is $4,000, though widely varied across the nation); (2) Put all property into a Revocable Living Trust at a cost generally higher than a will alone (and hire an Arizona attorney to deed the timeshare into the newly created trust at a cost of perhaps $300-$500); or (3) Have the Washington attorney prepare the will but also hire an Arizona attorney to prepare a transfer on death deed (also known as a beneficiary deed at an estimated cost of $500-$1000).
An otherwise simple estate plan can be made doubly complex if one uses a simple measure of cost in the plan preparation and/or execution by one simple asset. And, for most people, the timeshare is not an otherwise materially valuable asset of the estate. Let’s assume a husband and wife have a house, a 401K or two, and some cars and personal property. The total value of the estate might be $500,000. Timeshares are notoriously difficult to value on the secondary market but for argument’s sake, let’s assume the fair market value (not the price paid) is $12,000. The timeshare represents a small fraction of the value of the estate (around 2%) yet because it is located in another state, it requires effort and cost to plan for it which is inconsistent with its value. Few things in the estate planning world are as costly to plan around when considering the value of the asset compared to the increased cost of the resulting plan.
Without proper planning to avoid the secondary (sometimes called “ancillary”) probate in Arizona, the buyer (described above) is subjecting his estate and his heirs to not only increased costs but also increased administrative hassles as the heirs will need to hire another attorney in Arizona to assist with the secondary probate.
Timeshares can be fun. Perhaps they are a bargain. But to truly evaluate the propriety of the purchase, a buyer would be well served to consider not only the purchase price and maintenance costs, but also the increased estate planning and administrative costs of the asset.
Content in this material is for general information only and is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.