June 26, 2020, By Kevin Donohue:
With days now longer and weather warmer, it is easy to slip into a daydream envisioning getaways and escaping the four walls of your home or office. While travelers are more frequently looking for a place that provides space and relaxation rather than nightlife and entertainment under the current circumstances, and we have received quite a few questions regarding the ownership of timeshares as a vacation option.
Timeshares provide a way for a number of people to share ownership of a condominium unit within a resort area. Ownership is typically broken up into 52 “shares” with each unit approximating one week’s stay. In many cases, timeshare companies manage a portfolio of resorts, and a big draw to this type of ownership in many cases is the option to float weeks. By floating weeks, an owner can change the date or destination of their stay if it can be accommodated by the management company or another participating property. Many owners, however, choose a location in a destination they love to have the comfort of a reliable, familiar home away from home.
Those interested in investing in a timeshare should be aware that there are also several drawbacks. While the above features are attractive, from an investment standpoint, they do not often follow the same trends as other real estate investments in that they are difficult to resell and depreciate in value in many cases, with the fate of repairs and upkeep completely in the control of the management company and not the shareholders. Additionally, there are annual maintenance fees which are due whether you use the property in a given year or not, as well as occasional assessments. Both charges can be victim to unpredictable escalation. With the sale of a timeshare property typically suboptimal, there are also the options to gift the property or pass it down through an estate.
If an owner chooses to gift their share to charity, they should be transparent with the organization so that they know as new owners they will now be responsible for any fees, insurance, or taxes associated with the unit. If an owner gifts to another individual, the same responsibilities apply. In either case, the property will retain the cost basis of the original purchase. In some cases, owners wish to gift it back to the resort just to escape the associated fees. This is not an option with all resorts, however, and the parties would have to coordinate a notarized Quit Claim Deed.
Estate planning tools can be used for passing timeshares through generations in a more tax efficient manner. If a timeshare is inherited, the new owner will receive a stepped-up cost basis, making this a desired way to transfer the property. This should be discussed with beneficiaries, however, as they may not wish to assume ownership or have the capability to take over the associated fees. If the beneficiaries do not assume ownership, the estate will be responsible for paying fees until the property is sold. Any estate planning strategies should be discussed with an estate attorney to be sure transfer is tax efficient, in line with legacy wishes, and in accordance with state and federal estate regulations.
Participating in a timeshare can provide a welcomed getaway at a fraction of the cost of year-round ownership. If you are wondering if a timeshare works for your financial plan, our team is available to discuss in greater detail.