When a Shareholder Dies Pre Planning Eases Burden for Families & Boards

Information about Estate planning and old glasses.

Like dental work and filing income taxes, estate planning is not something most people typically enjoy - and is often put off till it’s too late. This reporter’s own father - who sold life insurance for a living - did not purchase cemetery plots. That sort of says it all.

But what about co-op apartments? What are the rules and regulations governing them in the event of the sudden death of the owner? Who stays and who goes?  These are questions to which shareholders should know the answers and plan for accordingly.

When a Shareholder Dies Intestate

“A deceased shareholder’s heirs, known as distributees, are determined by New York State law,” says Christian Zebicoff, a partner with the law firm of Romer Debbas based in Manhattan. “In the first instance, [it’s the] spouse and children.  If the shareholder is unmarried and has no children or grandchildren, then their parents are the distributees.  If parents are predeceased, then it would be the shareholder’s siblings and/or issue of predeceased siblings, etc.,  Those heirs/distributees also have priority to apply for Letters of Administration in the applicable county Surrogate's Court. This process must be done to vet the identity and capacity of all the interested parties and allow the court to appoint a legal representative who then has the authority to sell or transfer the co-op shares.”

An already difficult situation may become even more so if someone is living in the apartment who is not on the proprietary lease. “This issue is dependent on New York State law,” stresses Zebicoff, “to the extent that it determines who the ultimate beneficiaries of the shares will be. The process of obtaining the necessary court authority to sell/transfer, are usually made simpler and faster with a proper Will. However, the co-op proprietary lease and bylaws may allow immediate family - i.e., spouse and adult children - to continue residing in the apartment without a formal board approval process.”

When Supposition Becomes Real Life

If all this sounds like a convoluted and drawn-out process, that’s because it is - often to the dismay of relatives and loved ones after a shareholder passes away. Nicole Beauchamp, a broker with Engel and Volkers in their New York office has had real life experience with this type of situation.

“Heirs are often caught completely unaware of the process and length of time that it will take to dispose of the shares in this situation,” says Beauchamp. “They may also assume that they can automatically occupy the unit, and may not understand what the transfer rules are in case of a sudden death. 

“They also may not understand the general co-op process, the requirements for the purchaser, and that a board has to approve the purchase,” Beauchamp continues. “Most often the heaviest lift of the process is getting everyone to understand the timeline - that it’s not a liquidation sale that can happen in 30 days. If I have the opportunity, I advise the heirs that they should contact the management company and ask for transfer requirements, so they know what they will need to provide and do for the sale or transfer of the shares.”

According to Beauchamp, some of the most difficult situations she has dealt with have materialized when someone who was romantically involved with the suddenly deceased person and cohabiting in their apartment, but was not legally connected to them.  

“Where I have run into these kinds of problems is when there’s a previously unknown - or unrecognized - paramour who has taken up residence in the unit. These issues seem to create the most angst when the deceased shareholder had remarried, or had someone move in, and there is a lack of clarity amongst the survivors as to ‘who is on first.’”

To head off the delays and acrimony that can accompany a lack of planning ahead of time, Beauchamp says that “In recent months I’ve had discussions with families about ‘right-sizing.’ They must consider properties, aging in place, or funding future care – if that involves a sale. I provide market analysis as part of the planning discussions. It has become clear there are a lot of unknowns - and it’s best to clear up these unknowns while one still has the opportunity.”

In the end, no one lives forever, and planning is your best friend when it comes to your co-op shares. Better to have a plan than to leave a difficult situation for your loved ones.

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