Estate planning is about protecting you and your loved ones. Sometimes this can be a difficult endeavor when there is a loved one who may require additional support at your death. While you may want to give as much as possible to this individual, you may not want to do so at the expense of others you care about. A right of occupancy trust can help you plan for this situation as it relates to property use and ownership.
What is a right of occupancy trust?
A right of occupancy trust allows you to designate a beneficiary to live at your residence or use another piece of real estate for a designated time period or until the beneficiary dies or moves away. To implement this strategy, you include a provision in either your last will and testament or trust agreement that places the real property into a separate subtrust overseen by the trustee you have selected. The terms of this provision may allocate money to the subtrust to cover the property’s maintenance expenses. Instructions are also included that outline the beneficiary’s rights and responsibilities, as well any responsibilities that the trustee will need to undertake on the trust’s behalf. Finally, the trust instrument directs what happens to the property once the beneficiary passes away. You could choose to keep the property in the trust to be used by another beneficiary or give it outright to a beneficiary. Alternatively, the trustee may sell the property (unless doing so would adversely impact homestead or other rights) and hold the money in trust for someone’s benefit or distribute it outright to a chosen beneficiary. (Selling the property can have adverse impacts on homestead status, and the trustee should get legal advice before selling.)
What can be addressed with a right of occupancy trust?
When implementing this strategy, it is important to think through these questions to ensure that you provide clear guidance as to your wishes:
●Is the tangible personal property (e.g., furniture, appliances, knickknacks, etc.) included with the property?
●Do you want to set aside money for administrative costs, state and local taxes or assessments, utilities, property insurance, and mortgage payments, or will these be the beneficiary’s responsibility?
●If the property includes a residence, does the beneficiary have to live there full-time?
●Can the beneficiary allow a subsequent spouse, friend, or companion to live at the residence?
●Does the beneficiary have the right to stay at the residence for their lifetime, or does some other occurrence (e.g., remarriage, being admitted to a long-term care facility, etc.) terminate the beneficiary’s use?
Why should you consider a right of occupancy trust?
If you have a residence in your sole name but want to provide your surviving spouse a place to live without potentially disinheriting your children from a previous relationship, this strategy will enable you to protect all parties. If you have property that has been in your family for generations that you want your surviving spouse to be able to use for their lifetime, but you have a compelling desire to ensure that the ultimate ownership is passed to your children in order to keep the family property in the bloodline, a right of occupancy trust can assist you with this goal. If you have a loved one who is dependent on you and you want to ensure that they have a place to live after your passing, a right of occupancy trust can provide that security for your loved one while also protecting the home for the benefit of other loved ones in the future.
You Deserve a Team to Support You
To ensure that your wishes are carried out, it is important that we get your team involved to anticipate, plan, and execute all aspects of this strategy. A financial advisor can sit down with you to evaluate your current financial holdings and discuss the steps you need to take to ensure that money is available to maintain the property if you intend for most of the expenses to be covered by the trust. You should consult an insurance agent to ensure that your residence is properly insured through all of the different ownerships (i.e., yours, the right of occupancy trust’s, and the ultimate recipient’s, whether a remainder beneficiary or another trust). Your insurance agent can also advise you about life insurance options if you do not have the financial resources or cash assets to provide the funds needed to maintain the residence.
A tax advisor should be consulted to discuss important tax implications of aright of occupancy trust and to answer these important questions:
●Will your beneficiary be allowed to take any income tax deductions with respect to the property?
●Will the property qualify for any applicable property tax exemptions that may currently be lowering the property tax bill?
●Will the property tax be uncapped at any point during the funding or trust administration?
The Davis Schilken, PC team is available to counsel you on the options you have with respect to how your property is handled and how you want to provide for your loved ones. Once you have decided how to proceed, we can ensure that your wishes are documented in a legally enforceable way, giving you peace of mind that your plan will proceed smoothly at your passing and that your loved ones will be taken care of.
If you are interested in learning more about a right of occupancy trust or other ways we can customize an estate plan to protect you and your loved ones, schedule an appointment to meet with us. We offer no obligation, in person or virtual meetings (303)670-9855.