This column first appeared in the San Antonio Express-News and its MySA.com site on June 9, 2015.
Dear Mr. Premack: About ten years ago, my husband and I purchased a
Under Texas law, a Timeshare is any arrangement under which someone purchases an ownership right or purchases a right to use an accommodation for only a portion of a year. The rest of the year, the accommodation is used by other purchasers. Timeshares can be for a single property, be for multiple properties entirely inside Texas or can be multiple properties in multiple states.
Under Texas law, any timeshare interest may be conveyed independently of all the other owners’ interests. When you buy a Timeshare interest, your documentation might be called a lease, a membership agreement, a deed or a license. Conveyances may be recorded with the local county clerk’s office.
Texas law requires that the Timeshare developer provide a potential buyer with a lengthy disclosure statement. Honestly, the volume of paper that a potential buyer would receive indicates that the buyer will not read most of the disclosure. Still, one of the required facts that must be disclosed is whether the sales agreement reserves a right of first refusal to the seller, or contains any other restraint on the transfer of the Timeshare interest.
Consequently, you must carefully review all of the documents you signed at the time you decided to buy the Timeshare. Take the documents to your attorney. Search for any rights that have been reserved to the developer of the Timeshare. If there are restrictions on your right to convey the property, you must abide by them. If there are no restrictions, then your attorney can prepare a deed conveying your interest to your son and his wife. If there are restrictions, your actions are subject to all of the agreements you mae when you purchased the Timeshare.
Be aware that the transfer is a gift, and may be subject to federal gift taxes. You should have an accurate valuation for your Timeshare interest. If the value exceeds $14,000 per donee (that is, $28,000 between your son and his wife) then you must file a gift tax return to report the transfer.
Another tax issue: if you gift the Timeshare interest, the new owners will have the same tax basis as you have. If, on the other hand, they inherit the interest then they will receive a free step up in basis. Depending on whether the Timeshare has appreciated in value, the step up in basis from the inheritance could save them substantial capital gain taxes if they decide to sell the Timeshare in the future.
What if the Timeshare was not based in Texas? If it was located in another state, then it is possible that upon your death your Will would have to be probated in both Texas and the other state. To avoid that time and expense, your idea of gifting has merit. But you could also establish a Living Trust and convey the Timeshare into your Trust. That way, you can continue to own it, avoid gift taxes, avoid probate, and your son and his wife can reduce the capital gain tax if/when they sell in the future. Talk to a qualified estate planning attorney to help you sort out the best approach under your circumstances.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.