When your clients think of February, most of them may not envision warm, sandy beaches and tropical breezes, although many of them may wish to be in such a place when the temperature dips below freezing. Timeshare companies know all too well that when the temperatures drop, sales of timeshares rise. They convince your clients that the limited time offers, the low buy-in fees and the “negligible” management fees are a small price to pay compared to all the joy of having unfettered access to paradise. To the unwitting client, it looks like a wise investment, but it may become the getaway they can never escape. Here are two ways you, as the trusted advisor, can help your client as they consider investing in a timeshare.

Help Your Client Understand What is Being Purchased.

A quick internet search reveals thousands of people trying to rid themselves of timeshares. An entire industry is built around the business of brokering timeshare trades and sales. If they really are such great deals, why are so many people eager, and even desperate, to get rid of them?

Timeshares are not, by default, bad assets to have. However, each timeshare company is different, and what they are selling differs. Like anything else, there are good purchases and bad purchases. Some timeshare companies sell actual property deeds, while others only sell interest in a business that owns the property. Others still only sell a few “sticks from the bundle of rights.” For example, one timeshare company may sell a 1/52nd deed , while others may sell 1.9% ownership in a specially formed timeshare company (each representing one week of ownership in a year).

Your clients need to be aware of what they are purchasing (or merely renting, in some cases). Let your clients know they can consult with you on a wide variety of financial decisions that do not necessarily have to connect directly to their investment portfolios. As a trusted advisor, you should distinguish yourself as the “go to” for all financial questions, including timeshare investments.

Help Your Client Evaluate Based on Long-Term Objectives.

In the event that your client purchases business interest in a timeshare company, rather than a deed, it is likely that the parent company has a right-of-first-refusal attached to it. That means the timeshare your client may expect to transfer to his or her children might not be able to go to them. This does not mean a deeded timeshare format is necessarily better. Owning the real estate directly can trigger ancillary probate for your client upon death. Ancillary probate is the administration of a decedent’s estate in a state other than where he or she lived at the time of death. Ancillary probate usually is required in any state where your client owns real estate. It does not matter if he or she owns 100% of that real estate or only 1/52nd of it. In some cases, the cost of probating in that state can be more than the value of the property itself. In one matter I handled recently, my client died owning a piece of property in a neighboring state valued at less than one thousand dollars, but the cost to probate that property was nearly two thousand dollars.

Neither of these form of ownership are inherently good or bad, however they must be handled appropriately to ensure your client’s intentions are met, which includes satisfying financial and estate planning objectives. It is important that you understand from your client what they want to accomplish long-term concerning their timeshares. Is it something to be enjoyed temporarily and then sold at death? Is it a multigenerational family retreat, to be handed down from parent to child for generations?

Review these considerations with your clients, or today’s paradise getaway may become tomorrow’s inescapable nightmare.


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