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Deeds and estate planning

September 2019 | Danielle White, Esq. and Harold E. Gerry, Jr., Esq.
As most people likely know, a “Deed” is a document that evidences ownership of real property such as a house and the land it sits on. A deed is also used to evidence ownership of a condominium unit, whether it is a freestanding home, semi-attached home or apartment within a condominium complex.

For the apartment dwellers among us, the most common form of ownership for their units is called a “co-op.” In this instance, the land and building are owned by a cooperative corporation. Meanwhile, individual owners purchase shares of the corporation enabling them to live in the building with a Proprietary Lease assigning a particular apartment to them.

The importance of planning
Many people who decide it is time to address their Estate or Elder Law planning do not realize that examining their deed or shares of the Cooperative Corporation is an important part of their planning. Ascertaining how a deed or co-op shares are titled is essential to ensuring your wishes are carried out at the time you pass away. It is also important in regards to what should happen to that property if you were to need long-term care in the future.

A proper plan can make matters much less stressful for your loved ones if you were to pass away; it can also protect your property from the cost of long-term care if you were to become ill and need care. The wrong plan (or failing to plan at all) can leave a mess for family members to sort out upon your demise.

More often than not, the proper plan will involve a change in the ownership of a deed or cooperative corporation shares. Completing the change in ownership properly is a crucial part of an estate/elder plan.

As a reminder, the rules and bylaws of a Cooperative Corporation dictate what changes can and cannot be made in the ownership of the shares in a co-op. Before making or considering any changes, you should inquire with the managing agent or Cooperative Board to see if they allow the ownership change you are considering.

Pitfalls to avoid
Our law firm was recently contacted by a woman who had heard that she could simply transfer the ownership of her home to her daughter – thereby avoiding probate for the property after she passes away. The woman said her friend had done something similar. However, she was not aware of the pitfalls and dangers of simply signing the deed to her home over to her daughter.

When you “sign a deed over to someone else,” you are legally transferring the ownership of the property to that person. This means you no longer own that piece of property. Instead, you become a tenant of the property who can then be removed at any time.

Since you no longer own the property, you will no longer be eligible for certain real property tax exemptions and the taxes will likely be increased. In addition, since the property is owned by someone else, it can be sold at any time without your consent.

Options for transferring property
There are other ways to handle transferring a property such as retaining a Life Estate or using a Trust. A Life Estate is the retention of the right to occupy and enjoy the property for the rest of your life; this allows you to keep any real estate tax exemptions to which you are entitled.

You and the person/people that you transfer the property to (typically your children or a family member) all have an ownership interest in the property. The Life Estate solves some of the issues that can plague an outright transfer of the property. You cannot be forced to leave the property when you have a life estate, you retain all of the real property tax exemptions that you have and the home cannot be sold without your consent.

There are still some issues and pitfalls that remain, however, such as the fact that your home cannot be sold without your consent as well as the consent of your children (or family members). Those individuals would also be entitled to a portion of the proceeds of the sale of the home.

Another major downside is you cannot undo a Life Estate deed on your own (with one exception typically utilized in Florida). Rather, everyone on the deed must sign a deed to return the property to your sole name (or transfer or sell it to anyone else). In addition, a Life Estate deed – like an outright deed – can be vulnerable to your children’s creditors, their matrimonial issues or their untimely demise since they own a portion of the property.

Transferring a property to a Trust typically avoids the issues and pitfalls related to deeding a property outright to your children or even deeding a property that retains a Life Estate. Generally speaking, a Trust is used to prevent your children from being considered “owners” of the property – alleviating the concerns about their creditors, matrimonial issues or their prior demise.

A Trust typically allows you to retain the right to reside in a property and keep the real estate tax exemptions, similar to a Life Estate. In addition, a Trust does not typically require the consent of all of the beneficiaries to sell or transfer the property. It can be written to allow you the right to reside in the property for your lifetime.

Reviewing your deed or cooperative share ownership as part of your estate/elder planning is essential to ensuring your plan will achieve the goals you are striving to implement. Changing the name(s) on a deed or cooperative ownership may very well need to be part of your plan and should not be done without the proper guidance.

If you have any questions about the matters discussed in this article, please contact your Legal Service Plan’s National Legal Office at 800-832-5182.