Q&A: Trust Issues

Q&A: Trust Issues
Q For many seniors living in co-ops and condos, the viability of placing their owned units into revocable or irrevocable trusts has become an area of interest.

The major problem with this is that boards and managing agents are requiring large sums in legal fees when such requests for clearance are submitted to boards. In my case, the combined fees would surpass the cost of setting up a trust.

This problem raises several questions for me. What changes in deeds or wills must be considered during this process? How are boards to respond when a unit owner indicates that a trust will own the unit? Will a properly executed will allow for family members to inherit the ownership? And finally, why are such extravagant fees being requested of unit owners?

Any clarification on this matter would help immeasurably.

-Great Neck Shareholder

A According to Mary L. Kosmark of the Manhattan-based law firm of Rosen & Livingston, “The concept of ownership by a trust, either revocable or irrevocable, is an estate planning tool that is being used more commonly of late, due in part to large increases in the market value of real estate, including co-op apartments. Placing an apartment into trust ownership can remove it from the grantor’s probate estate (property disposed of by a will), eliminating the requirement for a lengthy probate proceeding as well as the related costs. The property would be distributed upon the grantor’s death in accordance with the terms of the trust. In order to create trust ownership, a condominium deed into the trust, or in the case of a co-op, a transfer of the shares of stock and assignment of the proprietary lease to the trust, would be required.

“Historically, co-op boards were reluctant to permit ownership by a trust. Specifically, boards were troubled by such issues as service of process, rights to occupancy, rights to vote shares and lack of personal liability for the payment of maintenance and other charges to the corporation. In order to allay these concerns and adequately protect the co-op, attorneys representing co-op boards may require the execution of certain documents that specify who may live in the apartment, who may vote the shares and act as agent for the service of process and who will be personally responsible for monetary obligations to the co-op. When all of these protections are put into place, boards have been willing to permit trust ownership. The legal fees that are billed to the grantor of the trust relate to the review of the instrument creating the trust, to ensure that it contains nothing detrimental to the co-op’s interest, and to the drafting of the documents mentioned. In addition, the co-op’s transfer agent must prepare and supervise the execution of all of the standard transfer documents and will collect its usual transfer fee.

“Condominium boards have many of the same concerns, but typically cannot prevent a trust from acquiring a unit, except by exercising their right of first refusal. Some condominiums have adopted modified versions of the documents discussed above.

“Finally, you inquire whether a will can insure the transfer of an apartment to a family member. A condominium unit owner is free to devise the unit by the terms of a will, without restriction. A co-operative shareholder’s interest is subject to the corporation’s proprietary lease and by-laws, which typically permit transfer to a financially responsible family member, but such person’s right to occupy the apartment would still be subject to board approval. In either of these cases, the unit or shares would belong to the probate estate, as discussed above.”

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