Important Questions to Ask When Investing in a Vacation Property

Kristine Romano • May 5, 2025

 

Investing in a vacation property is often as emotional as it is financial. Whether you’re dreaming of a lakeside retreat or looking to generate rental income, it’s important to look beyond the property listing and ask yourself a series of critical questions. The goal? To protect both your investment and your family’s future.

 

At Kristine Romano Law, we regularly help clients in Trust Planning in Southborough and surrounding areas who want to include vacation homes in their estate plans. Before you sign on the dotted line, here are the questions to consider—and how thoughtful planning can make all the difference.


1. Is this a personal retreat, an income generator—or both?

Understanding your primary purpose for purchasing the vacation property is key. Will this home be mainly for your personal use—a peaceful getaway for holidays and family gatherings—or do you intend to rent it out for additional income? The answer impacts everything from how you finance the purchase to how you manage taxes, maintenance, and long-term planning.


If rental income is part of the plan, be prepared for extra responsibilities like property management, tenant wear-and-tear, and fluctuating occupancy. You may need a local manager or property service to support you, especially if the property is far from your primary residence.


2. Can your children or heirs afford to maintain it?

Many families hope to pass down vacation homes as a cherished legacy. But owning a second property involves ongoing expenses—property taxes, insurance, upkeep, and repairs. If your children can’t afford the cost, they may feel more burdened than blessed.


One solution is to create rental income from the home while still preserving family use. Another is to gift the home using a Qualified Personal Residence Trust (QPRT). This Trust lets you continue enjoying the property for a set period while reducing estate taxes. If structured properly and you outlive the term of the trust, the home transfers to your children outside of your taxable estate. If you pass during the term, however, the property is included in your estate as if no trust was created.


3. Have you planned for long-term ownership and succession?

Passing a vacation home to the next generation isn't always simple. Joint ownership among siblings, for example, can create friction—especially when opinions differ on how the home should be used, maintained, or monetized. If one child wants to rent it out and another wants to use it every summer, tensions may run high.


To prevent future conflicts, some families form a Limited Liability Company (LLC) to manage the vacation property. An LLC allows parents to retain control during their lifetime and creates clear governance rules through an operating agreement. This document can outline usage schedules, maintenance responsibilities, and procedures for cashing out a sibling’s ownership. It also protects the property from liabilities and avoids probate in other states if the vacation home is located outside Massachusetts. If you're considering Trust Planning in Southborough, MA, including an LLC in your estate strategy is a wise move when multiple family members will be involved in property ownership.


4. What are the tax implications—now and in the future?

Vacation homes often appreciate significantly over time. If you sell the property later, you may be subject to capital gains tax on the difference between your adjusted basis and the sales price. The adjusted basis includes what you originally paid plus any capital improvements—think new roofs or remodels, not furniture or paint.


Understanding your tax exposure is crucial whether you plan to sell, gift, or leave the property to your heirs. Renting the property even part-time also introduces potential depreciation and expense deductions—but these come with IRS rules and reporting requirements.


Speak with a tax advisor and estate planning attorney to ensure you’re not missing out on deductions or facing unexpected tax liabilities. Our firm regularly helps clients balance these financial concerns as part of comprehensive Trust Planning in Southborough, MA.


5. Will the property be located in a different state?

Real estate in a different state from your primary residence can complicate your estate administration. For example, if you live in Massachusetts but own a cabin in New Hampshire, your estate might have to go through ancillary probate in both states. This adds time, cost, and stress for your loved ones.


Placing your vacation home in a trust or LLC can avoid this scenario. Trusts offer a seamless way to transfer ownership without probate delays, while LLCs keep the property outside your probate estate entirely. In some cases, you can also assign LLC membership interests using a Transfer on Death designation, allowing a smooth handoff to your chosen beneficiaries.


6. Are you involving the right professionals?

A vacation home purchase may start with a dream—but it succeeds through planning. Engaging a team of trusted professionals—including a financial advisor, tax expert, real estate agent, and trust lawyer in Southborough, MA—ensures that you're making a decision that supports your long-term goals.


Our clients often share how helpful it was to walk through the pros and cons of property ownership with our team, knowing that their estate plan and family dynamics were being considered every step of the way.


Protecting Your Vacation Home with Southborough Trust Planning 

Buying a vacation property is an exciting milestone—but it also brings long-term responsibilities and legal considerations. If your goal is to enjoy the home today and preserve it for the next generation, advance planning is essential.


At Kristine Romano Law, we help families in Southborough, MA and surrounding communities navigate these important decisions with clarity, care, and customized legal strategies. Whether you're forming a trust, exploring QPRTs, or simply updating your plan to include a new asset, we’re here to help you make the most of your investment—without losing sleep over the details.


Contact our office today to discuss how a vacation home fits into your estate plan—and how to protect the people and places you love most.


References: Elevations Credit Union (September 4, 2024) "6 Questions to Ask Before Buying Your Dream Vacation Home" and NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”



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