Timeshares: A Toxic Asset?

Article written by Karen L. Brady of Karen Brady and Associates, P.C.

It appears to be hitting critical mass, the dissatisfaction of many timeshare owners who find that they are perpetually bound to pay annual association dues for a timeshare they no longer want.  If they don’t pay the dues, they get sued.  And yes, we have seen our clients get sued when they try to “walk away” from their timeshare.

There are so many people trying to get out of timeshares that the scams are abundant.  We have counseled clients who are tempted to pay thousands of dollars to companies that claim to already have a buyer for their timeshare.  In every case like that, it has turned out to be a scam.  Sometimes these companies even send you a deed showing the timeshare has been transferred.  Problem is, the “buyer” is a fictitious person.

There are a few legitimate organizations willing to accept your timeshare on behalf of a charity.  In my experience, these organizations are offered so many timeshares they are very particular about which ones they accept — and they haven’t accepted one from any of my clients yet.  We have worked for clients trying to find someone who will take their timeshare off their hands for free.  We have not been successful.

So, consider this scenario.  You have a timeshare.  You may actually be enjoying it and have no plans to sell it.  That’s great to hear.  But my question is:  What will happen to your timeshare when you die?

Your timeshare is part of your probate estate or living trust.  It will pass to your heirs or beneficiaries depending on your estate plan.  But do your heirs want it?  Will they want to pay the annual dues?  What if your heirs do not want it?  What are their choices?

We have seen recommendations to disclaim a timeshare if you inherit one you don’t want.  From the heir’s perspective that MAY work.  A disclaimer is a legal “no thanks”.  It must be executed within a limited time frame and your heirs cannot get any benefit from the asset before they disclaim it.  But a disclaimer only shrugs off the problem.  As a result of the disclaimer the asset goes to the “next person in line” to inherit.  So now that person, or your estate if it is next in line, is faced with the problem.

Here’s an example I see far too often.  Tom and Mary have a timeshare they enjoy.  Tom and Mary also have a will leaving all of their assets to each other and then equally among their three children.  When Tom dies, Mary does not use the timeshare but she keeps paying the dues because she hopes the children will someday enjoy it.  Besides, Mary does not really know what else to do with the timeshare.  When Mary dies, none of the children want to accept the timeshare.  Sure, they can all disclaim — but that leaves the timeshare in the estate.  The homeowners association is a creditor of the estate, so the estate gets saddled with the dues until it can somehow get rid of this toxic asset, the timeshare.  So now the assets in the estate, say the house and the bank accounts, may have to be used to pay the timeshare dues until the estate can dump the timeshare somehow.  As another lawyer’s blog post correctly points out:  “If no one accepts the timeshare at the time of her death, her estate would continue to own it and it would become a liability for her estate.  If she has assets in her estate at the time of her death, the executor of her estate may have to use those assets to continue payments on the timeshare.”

So, in the long run, the kids are still saddled with the timeshare because they are the final recipients from the estate but they can’t get the valuable assets from the estate while the estate owes on the timeshare.  And, no, this result is no different if Tom and Mary used a living trust instead of a will.  So, what can Tom and Mary do?  One thing is to set up a separate trust to hold the timeshare.  It can be a revocable trust like the standard living trust.  However, the only asset this separate trust owns is the timeshare.  While Tom and Mary are alive, they use the timeshare and pay the dues as they always would.  When they are both gone, the trust can pass the timeshare on to the children.  However, if the children do decide to disclaim the timeshare, the separate trust will be liable to pay the dues of the timeshare until the trust can transfer the timeshare.  However…. the separate trust does not have any other assets.  So there will be nothing the timeshare association can attach if the dues do not get paid — except they can attach their own timeshare if they like.  The other assets are in a different trust and are not tainted by the stain of the timeshare debt.

So, if you have a timeshare, give some serious thought to whether it will be an albatross for those you leave behind.  And contact your estate planning attorney to talk about your choices.





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