Benefits and drawbacks of having a timeshare owned by a trust

Gabriel Katzner - February 22, 2021 - Estate Planning
Benefits and drawbacks of having a timeshare owned by a trust

Megan and Dan are interested in purchasing a timeshare in a condominium complex on their favorite beach. They have the opportunity to buy a two-week block of time that is fixed and a one-week block of floating time. This schedule works for them as they take a vacation at the same time each year. They purchased the additional floating week to share with family and friends. The timeshare offered a shared deeded ownership, so Megan and Dan own a percentage of the real property itself and have a deed for 3/52 of the unit owners. 

Megan and Dan were hesitant to purchase a timeshare initially as they heard stories about how people interested in timeshares were subjected to high-pressure sales tactics, vague contracts, and inflexible scheduling policies. They found that the company from which they purchased their timeshare was very transparent about all fees and how the scheduling system worked. Megan and Dan are meeting with their estate planning attorney to ask questions about how their timeshare should fit into their estate planning. Should they add their timeshare to their revocable trust? Should they share ownership of the timeshare with Megan’s sister and her husband to ensure they have more usage options? If they do not use the timeshare, are there any other options to get value from it? 

Should a timeshare be owned by your trust?

Megan and Dan have a revocable trust. Since they will have a shared deeded ownership in the timeshare, they consider having the trust purchase the timeshare. The way their contract is structured, they are owners of rights in real property. Being owners of real property means that if they die, the property may be subject to lengthy and possibly expensive probate proceedings before the property can be passed to their heirs. Putting the property in a living trust, joint ownership with rights of survivorship, or payable on death or transfer on death designation can help avoid this process. If Megan and Dan have the trust to own the timeshare, it will help ensure that their named beneficiaries will have the right to use or take ownership of their timeshare when they are gone without needing to go through probate court. 

Megan and Dan have had their timeshare contract reviewed by their real estate attorney, who verified that the contract includes clear language specifying how the timeshare can be transferred to a beneficiary. If they had not confirmed this was in their contract, their heirs might have had to pay thousands of dollars in probate costs to transfer the property. Megan and Dan put off purchasing the timeshare until they spoke with their estate planning attorney. They did not want to incur any fees for transferring ownership of the timeshare from their name to ownership by their trust. 

Ultimately, determining whether to own a timeshare in trust depends on many factors. Asking questions and fully understanding the terms of the contract can help determine if this is the best decision in your circumstance. 

Should a timeshare not be owned by a trust?

If Megan and Dan found that they did not use their timeshare as they expected or not as much as in the past and no one in their extended family seems interested in using it, it may make more sense to sell the timeshare. The added fees from timeshares can be very expensive. In addition to annual maintenance fees and dues that may be assessed to the owners, special assessments may also be levied on owners when a property sustains damage from a natural disaster, fire, or needs special maintenance. In some cases, timeshare maintenance fees are $800 to $900, which is a hefty fee if the timeshare is not being used. 

If Megan and Dan’s living trust owns the timeshare, their trust beneficiaries will inherit these maintenance fees and special assessment obligations because the contract binds the trust. If none of the beneficiaries want to use the timeshare, the trustee will have to try to sell the trust on the open market. Timeshares tend to depreciate in value over time. The market for timeshares is very limited, and historically, people selling timeshares are lucky to get even a fraction of their original timeshare price. 

Another consideration is that it can be difficult to walk away from a timeshare while still owning it. Many timeshare companies are experts at high-pressure sales techniques and use litigation threats and getting collection agencies involved to ensure that you continue to pay your annual maintenance fees. If Megan and Dan feel that the timeshare may not provide the value they expect it will or if they believe that none of their family members will want to inherit it once they are gone, it may be better to leave it out of their trust entirely. Many timeshare contracts have provisions that terminate the contract upon the owner’s death. If the trust owned the timeshare, the agreement would not have an endpoint, as the trust cannot die. 

Practically, even if the timeshare contract did not end at the owner’s death, if the only asset Megan and Dan owned that was not included in the trust was the timeshare, and no one in their family was interested in inheriting it. The timeshare company would have to initiate probate to seek payment from Megan and Dan’s estate for the unpaid maintenance fees. The cost and hassle of doing so would not likely benefit the timeshare company, so they are likely to abandon any claims for anything more than a reversion of the timeshare title back to the company. 

Final Thoughts

Owning a timeshare can provide significant benefits to people who plan to and follow through with their plans to use the property regularly. It can be wise to title ownership of a timeshare in the name of trust if a family and succeeding generations plan to maximize the timeshare value. However, suppose the timeshare ends up being more of a liability than a benefit. In that case, it is important to review your obligations under the timeshare contract and verify whether owning a timeshare in a trust is a good idea or if you have not purchased one, whether owning one is a good idea at all. Reviewing the contract with your estate attorney may also bring up questions and considerations to help you make this important decision, Contact us for immediate assistance at Katzner Law Group now!



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