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Jordan E. Manley

Timeshares: The Real Cost for Your Little Piece of Paradise

February 2019

Jordan E. Manley

For better or for worse, many of us at one point or another have listened to a somewhat pushy salesperson tell us about our once-in-a-lifetime opportunity to own a little piece of paradise known as a timeshare. A timeshare is an interest in property for a specific period of time and is typically acquired through a vacation ownership program with a hotel chain or through an outright purchase of the interest.  Unfortunately, estate planning considerations are rarely at the forefront of discussion when such purchases occur.

The lack of estate planning discussion during the purchase of a timeshare is understandable, considering many surveys show that more than half of Americans have not established an estate plan.  When a person dies with assets in their individual name that do not transfer via beneficiary designation or operation of law, the assets will be administered through a process known as probate.  Probate is a legal process where a court oversees the distribution of a decedent's assets, including real and personal property. The probate process can take anywhere from six months to a year (or more) to complete and can be costly, depending on the scope and nature of the estate assets.  For example, a separate probate proceeding is required in each state where the decedent's real property is located, if it is not transferred by operation of law, such as by right of survivorship.

For those who cannot afford a vacation home, owning a timeshare might be the next best investment for years of vacations in a favorite location without incurring the repeated costs of hotel lodging. The purchase of a timeshare creates an interest in real property, so it is acquired by deed and may require a probate proceeding to transfer at death – just like any other real property interest.  For Oregonians and others in the Pacific Northwest, a logical timeshare destination is typically found on the Hawaiian Islands.

For these reasons, it is essential to address ownership of the interest in connection with an estate plan that seeks to avoid probate.  Further, it is important to consider Hawaii's unique recording systems and land conveyance tax requirements.

Hawaii's recording system is unique in a couple of facets. First, Hawaii is one of only two states in the nation with a statewide recording system; the other states operate by recording in the county where the property is located. Under this statewide recording system, there are two methods to record deeds, and the method used to record will impact future transfers at the time of an owner's death. The easier method of recording a deed in Hawaii is commonly referred to as the "Regular System." A deed with defects will be accepted in the Regular System as long as the deed meets Hawaii's statutory requirements for recording.

The second method of recording is known as the "Land Court System," and as the name implies, is a much more formal recording process derived from common law that involves a judicial process. The benefit of having a timeshare deed recorded in the Land Court System is that the Court will issue a certificate of title that contains the names of all owners along with a list of any encumbrances on the property. The certificate of title creates the State's guarantee that the property is owned by the individual(s) named on the certificate. The natural burden of recording in the Land Court System is the completion of several detailed forms necessary to receive certificate of title.  In the context of a timeshare, the level of detail becomes more complex because the description of property not only involves physical location but also includes a description of a period of time. Additionally, there are typically multiple deeds involved for a single parcel of property.

Hawaii also imposes a land conveyance tax when real property is transferred from one individual to another in common situations such as sale, divorce, transferring the property to a trust, and at death. The conveyance tax rate is progressive meaning it increases based on the value of the property. The more valuable the property, the higher the conveyance tax rate. As with any tax, a form must be properly filed with the Bureau of Conveyances and the tax liability must be accurately determined. To further complicate matters, the land conveyance tax form must be printed on a specific color of paper otherwise the form will not be accepted.  With respect to timeshares, the recording of a new deed upon transfer and the filing of a land conveyance tax form are two somewhat hidden costs that are likely not explained by that somewhat pushy salesperson when you buy your little piece of paradise.  Notwithstanding, the issues of transfer deeds and land conveyance tax forms become necessary when it is time to administer a person's estate. Due to the complex nature of Hawaii's recording system, many estate planners outside of Hawaii will engage a Hawaiian attorney to help record a timeshare deed.  Engaging local Hawaiian counsel can help to ensure the deed is recorded properly and avoids the potential for the deed to be rejected.

As evidenced by the complex nature of timeshare real property interests, particularly in Hawaii, discussing your concerns about such real property interests with an experienced estate planning attorney is highly important.  Your estate planning attorney will be able to provide recommendations and advice with respect to the most efficient method to establish a plan with your existing or future timeshare property. The best way to accomplish your goals, properly direct your assets to your loved ones after your death, and utilize probate avoidance techniques is to consult with your estate planning attorney and create a plan during your lifetime. You should continually review your plan to ensure it always meets with your intentions and remains up to date with respect to major changes that occur throughout your lifetime.

Jordan E. Manley is an attorney at Sussman Shank LLP. She focuses her practice on estate planning and administration, wealth preservation, and general business.  Jordan can be reached at 503.972.4256 or jmanley@sussmanshank.com.

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