"There is an advantage to splitting the cost and sharing the risk of a huge investment like an airplane," says Alan Weinstein, a CPA and co-founder of RWE Private Wealth, a multifamily office in Tampa, Fla., that has several clients that make use of fractional ownership plans.

Weinstein and Seth Ellis, another co-founder of RWE, have put together many fractional ownership deals for clients, including contracts covering the ownership and use of planes and helicopters.

"If you own a jet, you have to consider $100,000 a year in maintenance, and you need to know when to buy and when to sell," Weinstein says. "If you split the responsibility and the financing, it becomes more manageable."

"But there are issues to consider for fractional ownership, too," he adds. "State laws govern much of this, and they vary from state to state. There are tax considerations and much of the tax advantage to partial ownership was eliminated in the 1980s."
Ellis says fractional ownership plans can get complicated, particularly when it comes to putting a value on an ownership stake.

"We have a family that has three siblings and they share the family business. We have one client who shares a beach house with his business partners," he says. "You have to decide how to value the interest in the ownership, which also brings into consideration estate planning. You have to consider the interests of minority owners and how to get your money out if you cannot sell."

Estate and gift tax regulations fall under federal law and can change frequently, Weinstein warns. "You need to have liability protection that depends on the type of entity you create for the purchase and you need protection if there is debt on the property. Everyone needs to understand all of these issues," he says.

"You have the same kind of problem if someone dies: How do you value the property?" Ellis adds. "And what happens if someone does not make a $20,000 capital call when you need to raise money?"

Despite the legal and tax considerations, the arrangement can work well between strangers or friends, they say. Michael Mantovani, who is in television production in Orlando, Fla., is an RWE client who has half ownership in a yacht with his business partner.

"We thought of buying an airplane for business, but that would just get us to work," Mantovani says. "We wanted something that would give us fun. We knew we could buy a bigger boat if we bought it together. We call it our investment in our sanity, but it will depreciate in value, so it is not a financial investment.

"We usually use it together so there is no conflict. But you have to consider the legality of owning something with a partner. There are many provisions that can be written into fractional ownership arrangements: who uses it when, how to raise money when needed, when do you decide to sell or trade up, what happens if one person needs their money?" Mantovani says. "We also use the boat (valued at about $900,000) for business, so we have to bring in our financial advisors, attorneys and business accountant."