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Estate Planning – Can You Put Your Condo or Co-op In Trust

Guzov's Good Advice, Real Estate Legality

New Yorker’s know that purchasing a condo is significantly easier than purchasing a co-op, as condo purchasers are not subject to lengthy and invasive interviews and overall, have more freedom than co-op shareholders. This is especially true when undergoing estate planning. As condo owners obtain the right to the real property, condo boards have less governing power over the manner in which you transfer your proper or to whom you leave it. Therefore, condo owners can transfer title of their property into a trust without the myriad of hurdles that co-op owners are likely to face.

Why would you want to transfer your co-op shares into a trust? It simplifies the management of your estate, along with tax benefits. There are two main types of trust that co-op shareholders utilize.  The first is a Qualified Personal Resident Trust (QPRT). QPRTs makes it easy for shareholders to save a significant amount of money on estate taxes, which would be calculated at far below market value. However, there’s a catch. The grantor (the creator of the trust) will create the QPRT for a specified amount of time. Once the term of the trust expires, the shares will transfer to the designated beneficiary. If the grantor dies before the term expires, the property in question will be taxed at market value with the rest of the estate. If the grantor does survive the term of the trust, an additional issue is raised in the co-op setting.  As the shares are transferred to the beneficiary, the grantor becomes a subtenant, and the beneficiary becomes the owner.  At this point, a co-op would be faced with a shareholder that had not been vetted. To avoid this problem, it is important to ensure that the grantor and beneficiary come to an agreement with the co-op for the grantor to continue to live on the property once the trust term expires.  This agreement should also account for payment of maintenance fees and any other costs attributable to the shareholder.  This is the case for condominiums as well, however, in regards to co-op shareholders, the shares are transferred and the downfall is that “any risks are the concern of all shareholders” (Romano, J., 1999, New York Times).

The second type of trust is a revocable living trust. This trust is most commonly used to protect one’s estate in case of disability or death. Unlike a QPRT, which has a specified term, with a revocable living trust, the property held in trust is transferred to the beneficiary once the grantor dies. A revocable living trust is similar to a will without the requirement that the property be probated and subsequently become public information. A revocable living trust therefore maintains the grantor’s privacy. However, for a co-op, it becomes an issue of shares being transferred to a trust beneficiary that has no existing relationship with the co-op board.  Much like with a QPRT, the grantor and beneficiary can come to an agreement with the co-op that resolves each party’s concerns.

Approving a shareholder to transfer his or her shares into a trust is a board decision. So what can a co-op board do to protect its interests? For both types of trusts, the board must vet and consent to the beneficiary.. If the shareholder has a mortgage, they will also have to seek approval from the bank before creating the trust. For a QPRT, the co-op board can force grantors to sign a new contract which subjects the grantor to the proprietary lease once they become a beneficiary’s subtenant and the grantor’s own proprietary lease is no longer valid. The contract should include terms guaranteeing payment of maintenance and stipulating that the beneficiary cannot sublet the apartment to a third party. To avoid the risk of the grantor being evicted once the term of the QPRT expires, the grantor and beneficiary can implement a lease agreement at arms-length. Although there are risks to allowing co-op shareholders transferring their assets into a trust, co-op boards can control the situation by simply implementing specific terms in a new contract, and of course by approving the beneficiary.

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