Timeshare Traps and How to Avoid Them

Timeshare Traps and How to Avoid Them

If you are fortunate enough to go on that well-deserved vacation this year, then there is a good chance you will find yourself listening to the all-too-familiar ‘timeshare marketing pitch.’   Most people are familiar with the concept of a timeshare, but there is more than meets the eye.  The repercussions of owning a timeshare can vary tremendously depending on many things, including whether it is a real property interest, a mere right to use the property, or some other arrangement.  

#1 – Timeshares are not Inherently Bad Investments.  If a timeshare really interests you (and they are legitimate and worthwhile investments for many families), you can plan in advance to take ownership the right way and avoid legal traps and snares down the road.  Most people do not realize the thicket of possible legal ramifications inevitable to owning one (or more).  Timeshares are typically sold in a high-pressure environment, chock full of free food, gifts, and even vacations; these tools are all part of a business model intentionally designed to get vacationers to make impulsive buying decisions.

#2 – Type of Ownership is Critical.  If you own real property outside Virginia and die without proper estate planning documents in place (no, a simple Will is not enough), then a representative of your estate must appear in every state where such property is located.  This means that if you live in Virginia but you own a timeshare for one-week in Florida, if it is considered “real property,” then the Florida courts must determine how and to whom your interest is distributed. 

If your purchase of the timeshare is in the form of a deeded contract, your interest is considered ownership of real property.  Just like your residence, this real property may be sold, rented, gifted, or given to your heirs after death.  Similarly, your timeshare interest may also be subject to real estate taxes and probate.  While taxes are usually included in your timeshare maintenance fee, the disposition of your ownership interest after your death is another issue.  If you die without a trust to dispose of your assets, then the court system where the timeshare is located will either “probate” your Will, or follow the statutes of the state if you have no Will.  In any event, dying without a trust and with real property can cause major headaches for your executor. Luckily this can all be avoided.

If the deed to your current or prospective timeshare is a “leasehold deed,” then it means ownership only lasts for a specified period of time.  A “right to use” contract means what it sounds like – the purchaser acquires a right to use and enjoy the rights of the property owner (usually a resort).  However, the pitfall of a “right to use” contract is that some benefits you may not care about, like a club membership, may be included.  The “right to use” form of timeshare acquisition is used heavily overseas and in Mexico, because the ownership of foreign real property interests opens a door to many more legal complexities.

#3 – You Should Not Decide Then and There.  Do not sign anything before you leave, unless you already have a revocable living trust and have already met with your lawyer regarding the timeshare you are considering.  The concept of a timeshare is attractive, but before saying “yes,” it is absolutely imperative to speak with a good estate planning attorney.  For those who own timeshares already, whether or not you are considering an additional purchase, it is very important to be sure that transfer of your ownership interests in these timeshares upon your death will not result in expensive and time-consuming paperwork for your heirs.

Image: photostock / FreeDigitalPhotos.net Evan H. Farr on Google +