The Vacation Home Question Almost Every Massachusetts Family Eventually Asks
If you own a place on Lake Winnipesaukee, a cottage on Cape Cod, a ski condo in the Berkshires, or a seasonal home in Maine or Florida — at some point, the question comes up. Should the vacation home go into a trust?
Sometimes the question comes from your accountant. Sometimes it comes from a friend who just put theirs in a trust. Sometimes it comes from your kids, especially if there are several of them and you’ve started to think about what happens to the place when you’re gone.
The short answer is — for most Massachusetts families with a vacation home, yes, putting it in a trust makes sense. The longer answer is that the type of trust matters enormously, and the wrong choice can create problems that wouldn’t have existed without the trust at all.
This is the framework we use with clients to figure out which way to go. If you want to talk through your specific situation, our contact page is the easiest way to start.
Why Put Your Vacation Home in a Trust at All?
Before we get into which type of trust, it’s worth being clear about what a trust actually does for a vacation home. There are four real benefits:
1. Probate avoidance — especially across state lines. If you own real estate in another state, that property has to go through probate in that state when you die. Massachusetts probate doesn’t reach a New Hampshire condo. So a Massachusetts resident who dies owning a Lake Winnipesaukee place in their own name is opening two probate proceedings — one in Massachusetts for everything else, and one in New Hampshire just for the lake property. That’s two sets of court filings, two attorneys, two timelines, two sets of costs. A properly funded trust avoids both.
2. Privacy. Probate is public. Anyone can pull the file and see what you owned, what it was worth, who got it, and who didn’t. Trust administration is private — the family handles it without court oversight or public record.
3. Continuity. A trust can specify exactly how the vacation home is to be used after you’re gone — who gets summer weeks, who pays for maintenance, who can sell their share, what happens if someone wants out. A simple bequest to “my three children equally” doesn’t address any of this and often leads to family conflict.
4. Massachusetts estate tax planning. For families approaching the $2 million Massachusetts estate tax threshold, certain types of trusts can remove the vacation home — and any future appreciation — from the taxable estate entirely.
The first benefit alone — avoiding multi-state probate — is enough to justify a trust for most Massachusetts families with out-of-state vacation property. The other three are bonuses that compound the case.
Revocable Trust vs. Irrevocable Trust — Which One for a Vacation Home?
Here’s where the decision actually gets made. There are two main types of trusts to consider, and they serve very different purposes.
Revocable Living Trust
This is the trust most Massachusetts families end up using for their primary home, vacation home, and most other assets. It’s called “revocable” because you can change it, amend it, or undo it any time during your life. You stay in complete control of the property — you can sell it, refinance it, rent it out, or transfer it back out of the trust at any time.
What it does:
- Avoids probate (in Massachusetts and any other state where property is held in the trust)
- Keeps the transition private
- Allows you to specify post-death use and management of the home
- Provides for incapacity — if you become unable to manage your affairs, your successor trustee steps in without going to court
What it does NOT do:
- Save income tax during your lifetime (revocable trusts are tax-transparent)
- Reduce Massachusetts or federal estate tax on its own (the property is still part of your taxable estate)
- Protect the property from your creditors or lawsuits (you still own it in the eyes of creditors)
- Protect the property from a long-term care spend-down (the five-year MassHealth look-back treats it as your asset)
For most Massachusetts families with a vacation home, a revocable living trust is the right answer. It’s flexible, it solves the multi-state probate problem, and it preserves all the tax benefits of homeownership (including the Section 121 capital gains exclusion on a primary residence sale, if applicable).
Irrevocable Trust
An irrevocable trust is what it sounds like — once the home is in it, you generally can’t take it back. Different types of irrevocable trusts achieve different goals:
- Qualified Personal Residence Trust (QPRT): A specific type of irrevocable trust that removes the home from your taxable estate while letting you live in it for a set term of years. Common for families with significant Massachusetts estate tax exposure.
- Irrevocable Income-Only Trust (sometimes called a Medicaid trust): Removes the home from your assets for MassHealth long-term care eligibility purposes after the five-year look-back period passes.
- Dynasty trust or generational trust: Holds the vacation home for multiple generations, typically with detailed rules about use, sale, and family governance.
Irrevocable trusts are more powerful, but they come with real tradeoffs — loss of control, more complex tax treatment, and irreversibility. They’re not the right answer for everyone, and they’re a much bigger decision than a revocable trust.
Massachusetts Residents with Out-of-State Vacation Property
This is the situation where putting the vacation home in a trust matters most — and where most Massachusetts families have at least one foot.
If you live in Massachusetts and own real estate in another state, the law of the state where the property is located governs how that property transfers at death. Each state has its own probate process, its own court system, and its own attorneys’ fees. We’ve seen this play out across:
- New Hampshire — Lake Winnipesaukee, the White Mountains, the Seacoast
- Maine — coast and lakes
- Vermont — ski country
- Cape Cod and the Islands — technically in Massachusetts but often a separate probate consideration if held in a particular structure
- Florida — second homes in Naples, Boca, the Keys
- Colorado, Wyoming, the Carolinas — wherever the family has put down a second flag
Each out-of-state property without trust ownership means a separate “ancillary probate” proceeding in that state when you die. Ancillary probate typically adds 4–9 months and several thousand dollars in fees to the overall estate administration. For families with multiple out-of-state properties, the math compounds quickly.
Putting each out-of-state property into your Massachusetts revocable living trust eliminates the ancillary probate entirely. The successor trustee — typically your spouse or adult child — handles the transition without ever filing in another state’s court.
Vacation Home Tax Benefits and What a Trust Changes
The tax picture for a vacation home depends heavily on how you use it. The IRS treats vacation properties differently based on:
- Personal use only: No rental income; deductions limited to property tax, mortgage interest (subject to limits)
- Rental property: Income reportable, but deductible expenses including depreciation
- Mixed use: Rules under IRS Publication 527 determine how expenses are allocated
A revocable trust is transparent for tax purposes — meaning none of these tax characteristics change just because the property is in the trust. You file your taxes the same way. Your mortgage interest deduction, your property tax deduction, your rental income reporting — all unchanged.
This is one of the most common misconceptions we have to clear up: putting your vacation home in a revocable living trust does NOT change your income tax situation. It also does not change your property tax bill or any homestead exemption you may have on a primary residence.
What a revocable trust changes is what happens at death:
- The home avoids probate in whatever state it’s located in
- It receives a step-up in basis at the date of your death — meaning your heirs inherit at the home’s date-of-death fair market value, eliminating decades of accumulated capital gains
- It transfers privately to your named beneficiaries
For estates approaching the Massachusetts estate tax threshold of $2 million, more advanced strategies — like a QPRT — can also remove the vacation home and its future appreciation from the taxable estate. This is something we evaluate for clients on a case-by-case basis depending on overall estate size and goals.
What Are the Disadvantages of Putting Your Vacation Home in a Trust?
Honest answer — there really aren’t many for a revocable trust, but there are a few worth mentioning:
Setup cost. A properly drafted Massachusetts revocable living trust isn’t free. Expect to invest in the drafting, plus the cost of recording new deeds for any real estate transferred in. For a single vacation home, this is typically a few thousand dollars all-in. Compared to the cost of probate (especially across state lines), it usually pays for itself many times over.
Title work. The home has to actually be deeded into the trust. This is the step most often skipped — people sign a trust and assume the work is done. It isn’t. The property needs a new deed, properly recorded in the county where the property is located. We handle this for clients as part of the trust funding process.
Mortgage and insurance considerations. Most lenders allow real estate to be transferred into a revocable trust without triggering due-on-sale clauses, but this needs to be checked first. Insurance policies generally also need to be updated to name the trust as an additional insured.
Out-of-state property tax records. New Hampshire, Maine, Florida, and other states each have their own quirks for how trust-held property is reflected on the tax rolls. None of these are dealbreakers — but they do mean the post-purchase paperwork has a couple of extra steps.
For an irrevocable trust, the disadvantages are more significant — primarily loss of control and the inability to undo the decision easily. This is why we generally only recommend irrevocable trusts in specific situations: tax planning for estates well over $2M, MassHealth planning with adequate runway, or multi-generational family compounds where governance is explicitly desired.
What About Family Compounds and Multi-Generational Vacation Homes?
This is one of the most rewarding planning questions we work through. Many Massachusetts families have a place that’s been in the family for generations — the cottage on the lake, the camp in Maine, the cabin in Vermont. Everyone has memories there. And everyone has different ideas about what should happen to it.
A trust designed for a multi-generational vacation home can address questions like:
- Which family branches have the right to use the property — and when?
- Who pays the property taxes, insurance, maintenance, and repairs?
- Can a beneficiary force a sale, or are they locked in until everyone agrees?
- What happens when one branch wants to sell their interest and another wants to keep it?
- Who has authority to make major decisions — capital improvements, bringing in renters, replacing the dock?
A well-drafted vacation home trust answers all of these in advance — usually with input from the family during life. It can include a “right of first refusal” clause so a family member who wants out can sell to other beneficiaries before the property is sold to outsiders. It can establish a use schedule. It can create a sinking fund for major repairs. It can name a “managing trustee” with authority to make ordinary decisions without unanimous consent.
The alternative — leaving a vacation home equally to three or four adult children with no governance structure — has caused more family fractures than almost any other estate planning mistake we see. The home gets sold under pressure, or one sibling resents another’s lack of contribution, or a divorce drags an in-law into ownership decisions. It’s preventable, but only with structure built during life.
Times It Might Not Make Sense
A trust isn’t always the right answer. A few situations where we sometimes advise clients to wait or to use a different structure:
Property held with a non-spouse co-owner. If you own the vacation home jointly with a sibling, friend, or business partner, putting your interest into a trust requires their cooperation and may complicate the joint ownership structure. Worth working through carefully.
Intent to sell within a few years. If you’re planning to sell the vacation home in the near future anyway, the cost of setting up a trust just to hold it briefly may not be worthwhile.
Properties with significant negative equity or pending litigation. A trust doesn’t shield you from creditors or pending claims, and trying to use it for that purpose can create fraudulent transfer issues.
Very small estates. If your total estate is well below the Massachusetts estate tax threshold, doesn’t include out-of-state property, and is otherwise simple, a will-based plan may be sufficient. Worth running the numbers either way.
In all of these cases, the right answer is a conversation, not a default.
How We Approach Vacation Home Planning
When a client comes to us about putting a vacation home in a trust, we typically work through five things:
- The structure — revocable, irrevocable, or some combination, depending on tax exposure and goals
- The funding — drafting and recording new deeds for the property, in whatever state it’s located
- The use rules — if there are multiple eventual beneficiaries, governance language for shared use
- Coordination with the rest of the plan — making sure the vacation home trust integrates with the will, the primary residence trust, and any business or retirement planning
- Insurance and lender notification — the operational follow-through that’s easy to forget
The work usually takes four to six weeks from first conversation to fully funded trust, depending on how quickly the deed recording goes in any out-of-state county.
Where to Begin
If you’ve been wondering whether your vacation home belongs in a trust — and especially if it’s in another state — the answer is probably yes for most Massachusetts families. The questions worth working through are which type of trust, how to structure it for the way your family actually uses the place, and how it fits with the rest of your estate plan.
We work with clients across Massachusetts and the Merrimack Valley on exactly this kind of planning, and we’d be glad to talk through your situation.
Reach out through our contact page. The first conversation is straightforward — tell us what you have, and we’ll lay out the options.
The Law Offices of Kimberly Butler Rainen serves families across Massachusetts and the Merrimack Valley with estate planning, trusts, probate, elder law, and special needs planning. This article is provided for general informational purposes and is not legal advice for any specific situation.