Future World Estate Planning in Co-ops and Condos

Most of us don’t like to spend a lot of time contemplating our so-called “final wishes”—we’d much rather leave planning our wills and executing our estates for another day. Uncomfortable as the subject is for many people however, it’s vitally important to make those decisions now, rather than waiting until it may be too late. The issue of estate planning is especially important when it comes to the right of transferring co-op shares or leaving a beneficiary your condo apartment.

Getting Past the Jargon

If you’re like many people, perhaps you haven’t given much thought to this question. After all, nobody really wants to think about his or her death—it’s something we have to do, but not really something we want to do.

However, without understanding the potential challenges associated with willing co-op shares to your heirs or another designee, you can be setting your friends or loved ones up for potential complications that they will have to sort through after you’re long gone. These complications may also lead to heartbreak when they realize that getting into your co-op is not as easy as simply getting the key to the front door.

The topic of transferring co-op shares is jam-packed with legalese that would make any homeowner wish that they had earned their law degree—but let’s first start with a crash course in ‘share-ing.’ It’s not as simple as just handing over your keys to your friend or neighbor and the deal is done. Steven R. Wagner, a founding partner at Wagner Davis P.C., in Manhattan, explains that the bottom line is that “the co-op corporations decide who will walk the halls and ride the elevators when it comes to deciding on who owns the co-op next.”

“With a condo, you own real estate and you get a deed,” Wagner continues. “With a co-op, you own a lease—you’re the tenant, and you own shares of stock in a corporation that is the landlord. The condo board doesn’t own anything; it’s a governing body to control those items which are stated in the declaration.”

What happens next can depend on the type of lease you signed when you moved in, whether or not you are single or married, roommates or significant others, and whether or not you have a will, which outlines your last wishes.

“Here’s a general caution,” says Wagner. “Not every co-op has the same bylaws or proprietary lease. You do find variations. For example, before you can transfer shares of stock, you are duty bound to go the board for approval of the person or persons you want to transfer the stock to. The board will require submission of an application for who is going to occupy the apartment. It will contain the financial terms of the deal, maybe tax returns, recommendations, and so forth.” According to Wagner, the board can refuse any potential candidate as long as it does not illegally discriminate against them.

A Tale of Two Owners

Attorney Mark Luxemburg of the law firm of Snow Becker Krauss PC in Manhattan explains that as a couple, or as two or more owners taking title to the home, you have two fundamental ownership methods: tenant-in-common and joint tenancy with right of survivorship.

“When you buy an apartment,” says Luxemburg, “you have to specify then how you’re taking title to it. Both of them involve an automatic transfer of interest upon death, so that you would not need to go to the surrogate court to take legal action for the surviving spouse to automatically own the entire apartment.”

In this case, each tenant-in-common owns a specified, though not necessarily equal, interest in the property. The shares can be willed by the tenant to their chosen heir. For the surviving tenant however, it may not be a beneficial agreement because they could theoretically end up having to cohabitate with a stranger—as long as that stranger was approved by the board and had no problem with having a roommate.

Joint tenancy with a right of survivorship is defined as is a type of ownership where any two or more persons, related or not, may hold and/or own property, with that property passing to the survivor or survivors upon the death of one. This passing is not automatic—contrary to what one might think—and the procedure for the transfer will depend on local law. But, this form of ownership does have the advantage of allowing property to pass to the survivor without delays of probate and court administration costs.

Unfortunately, some residents are left without any heirs or family. “If the shareholder dies without a will and without heirs, a friend will go into surrogate court,” says Stuart Saft, partner at Wolf Haldenstein Adler Freeman & Herz, LLP in Manhattan. “The surrogate court will name someone to take control of the shares.”

If there are absolutely no heirs, friends or such who can step in to take control of the shares, the property can be returned to New York State—which would most likely sell it. In those cases, the co-op board can buy back the apartment and return it to the real estate market for another buyer.

Estate Planning 101

There are so many levels of legalities to wade through when dealing with estate planning and ownership methods that the best thing a co-op shareholder can do is consult with an attorney before even purchasing an apartment. Let them know exactly what you want to do with your home should you die, and they can help you determine which lease agreement you need to sign and what other paperwork you need to complete in order to make your last wishes complete. Here are some important tips from real estate attorneys on how to safeguard your property and protect your heirs from serious complications:

• When there’s a will, there’s a way…“The will is the most relevant thing you need in estate planning,” says Kenneth Jacobs, an attorney with the law firm of Smith Buss & Jacobs LLP, in Manhattan and Westchester. “You can write, ‘I leave my shares and lease to my cousin John,’ or ‘I leave all of my assets to my cousin John.’ It doesn’t make a difference. In a condo, it is basically the same thing. The will should specify where the deed should be sent.”

As we’ve said before, remember that you can will your shares to anyone, but the ultimate decision about occupancy belongs to the co-op board.

• List your heirs in your stock certificate when you purchase the co-op. “Then you don’t have to go through probate and the board already agreed to the transfer since you have to be approved before you can be listed,” says Jacobs.

• Establish a revocable living trust. According to the website, www.nationalacademies.org, an RLT is “an arrangement by which you transfer ownership of your assets to another entity, a trust. As a ‘living trust,’ the transfer of assets must occur during your lifetime. You (the settlor) can set up a trust with your own assets and retain management and control of these assets if you act as your own trustee. You can also designate someone else as your trustee; for instance, in the event you become incapacitated.”

The RLT can be used as a substitute for a will—and there is no probate. It may be faster and less costly, but it is also stated that under a living trust, there is no ongoing court supervision of the trustee; therefore there is less protection if the assets are mismanaged. A living trust costs more to draft than a will; these expenses occur during your lifetime, as opposed to probate costs paid by heirs. Transferring ownership of all your assets to the trust can be a lengthy process.

No matter what you choose, just remember that not all options are right for everyone and there is so much more than what is written here. Consult your financial advisors and your attorney and make certain that you are making the best decision you can for you and your heirs. n

Lisa Iannucci is a freelance writer living in Poughkeepsie, New York and a frequent contributor to The Cooperator.

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2 Comments

  • my son-in-law inherited his father's co-op in Manhattan. For two years he's been paying the up-keep charges without being able to live there, yet has been refused "ownership: by the co op board. He has a considerable amount of cash available, own a a co-op in NJ and a house in Greenport, NY (without a mortgage). but his income, combined with his wife (She is a social worker, he a luggage designer) is under 100,000 a year. What are their options?
  • I'm in the exact scenario as Ruth. I inherited my mother's co-op in MN and have been paying the $800+ carrying charges for 1 year. I have tried literally everything to sell this. What are MY options????? I have my own home and have no intention on moving there.