By Beau Ruff

We have all been there. We take a vacation to Florida, Hawaii, 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, the owners often can exchange their ownership to allow them to

visit other luxury properties at different 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 who visit you or use

the timeshare.

This column

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, it 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. 

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 I’m not parsing the

various administrative possibilities).

Accordingly,

a person must go through probate in the state where the person lives and in any

state where the person owns real property — or 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 buy 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. The buyer now has

several options:

• Do a standard Washington will with the understanding that the client will need to go through probate in Washington and 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 varies).

• 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 $300 to $500.)

• 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 to $1,000).

An otherwise simple

estate plan can be made doubly complex if using 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 401(k) 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

percent), yet because it is 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 (or “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.

» Beau Ruff works for Cornerstone

Wealth Strategies, a full-service independent investment management and

financial planning firm in Kennewick.