Most people don’t think of family vacation property as an enterprise. The property does not generate a profit, like a business – though it creates expenses and it may have employees. The property usually does not have income, like an investment portfolio. Nor does it create cash that can be donated to charity, like a family charitable trust or foundation. Yet a piece of family vacation property is in fact a type of family enterprise. It contributes to the success or failure of the family that owns it. For this reason the property merits attention. It needs to be considered for its own sake.
The meaning of enterprise
At The Family Enterprise Office, we define “enterprise” this way: “All assets, activities, and entities through which the lives of family members are connected.” An enterprise is what the family owns, what the family does, and the entities through which the family acts. An enterprise is connective. It connects the lives of the people in the family. It connects their lives, not just their stuff. The enterprise embodies the family members moving through time together, especially in the decisions they make about what they own.
Viewed this way, vacation property clearly fits. Whether the property has great financial value is not the criterion. Instead, the question is whether the property has enough nonfinancial value to hold ongoing significance to the family. A simple fishing camp worth $150,000 in rural northern Michigan may mean far more to a family than an ocean frontage Cape Cod house worth $3,000,000.
The place of leisure
Two factors seem to drive the non-financial value. First is the shared experience of leisure. Second is attachment to a place. A family vacation property is the site of a distinct type of activity: leisure. Nowhere else do family members congregate for the purpose of not engaging in work. With a for-profit enterprise – a family-owned distributorship, for example – the family members work to make a living, to preserve and enlarge their financial capital, and to have employment for themselves. With vacation property, by contrast, the family members use the property for the purpose of enjoying some leisure. Any work that needs to be done to the property is incidental to the leisure.
This shared experience of leisure contributes to a person’s sense of place, which in turn strengthens the person’s sense of being grounded. We modern people, with our mobile devices and Web-based, always-on lifestyles, tend to assume one physical place is interchangeable with another. It turns out that’s not true. Every physical place has a particular character we can perceive with our five senses. Air temperature and humidity level in south Florida are not the same as in Colorado. Trees in a northern Michigan woods are not the same as trees in coastal South Carolina. If we let ourselves use our senses where we are, particularly when we are outdoors, we come to appreciate that we identify more with the appearance, sound, feel, and smell of a place than we realized. It’s possible for a physical place to resonate with a person, especially when the person is there for the purpose of relaxing. No wonder people tend to have favorite vacation spots.
Transitions in the enterprise
As an enterprise, vacation property can surprise its owners with tough decisions and pronounced transitions.
Consider the retired business owner whose wife has died. He and she spent considerable money improving their lakeside house into a place that would last 100 years. But the husband has remarried, and his new wife doesn’t care for the house. She has her own, equally fine vacation property near her own set of friends. The second marriage has left the husband’s children feeling adrift. Their mixed feelings for their father’s new wife cause them to back out of ownership with their father. He puts the property up for sale.
Or consider the family whose aging parents can’t make the trip to the property any more. A long car ride is out of the question, and airplane logistics are just too involved. The children are prepared to take turns staying with their parents over multiple weeks at the property. But their mother’s senility, and their father’s physical slow-down, are more than the group can handle. The parents end up staying home, with the children taking turns caring for them. When not on caregiver duty, the children visit the property with grandchildren, at once trying to enjoy themselves and wondering what the place will be like when they are the senior-most generation.
So what to do?
Ultimately, family enterprise concerns making decisions together about assets owned for common purpose. In this respect, a vacation property is just like any other enterprise. What is the optimal ownership structure – trust, LLC, some other form? Who will be the trustee or manager? Who gets to use the property, and when? Who pays? What about in-laws, guests, divorcees, and surviving spouses? What about property taxes and ongoing expenses? How will ownership interests transfer? Should a discount apply? May transfers occur only within branches of a family, or may they occur across branches? How to deal with adjacent property owners? And what about a system for resolving disputes?
So if this summer’s vacation has left you with tough decisions to make, take heart. In some ways, a family vacation property is more of a family enterprise than a operating business or a portfolio of securities. The first step is to recognize the property for what it is – an enterprise in its own right. Once you recognize this, you can deal effectively with questions of ownership, decision-making, the future, and vacations. Almost everyone likes a little vacation – both the family members who came before you, and those who will come after.
Want to read more on the topic of Unique Assets? You may be interested in: