Peace of Mind

Growing trend. As part of their estate planning, more elderly shareholders are seeking  to transfer ownership of their shares to a trust for the benefit of their heirs. Because a trust is a separate legal entity from a will, a transfer can help facilitate probate after the shareholder dies. For a long time, boards have tended to bar these transfers over worries that the trust, which has no income, may not pay maintenance or assessments. Another concern is occupancy; if the apartment is owned by a trust and not a shareholder, how will the board control who’s going to live there? Then there’s the question of the co-op losing control over the disposition of the apartment if the trust itself transfers ownership to someone else.

Built-in safeguards. All of this can be addressed with a conditional consent agreement among the co-op, the shareholder and the trust. First, the shareholder would personally guarantee to make all financial payments. As for occupancy, the shareholder and the trust would agree that the apartment would the shareholder and immediate family unless the board consented otherwise. There would be a retransfer restriction that the trust would not be able to transfer the apartment to anyone without board consent as well as an agreement that the shareholder or trust pay all the legal fees of the co-op.  Finally, the shareholder or trust would agree to pay all of the managing agent’s administrative transfer fees as well. 

Worst-case scenario. If the trust does not pay the maintenance and the shareholder as guarantor fails to pay, or if there is a violation of the occupancy restriction, the co-op can begin a nonpayment eviction proceeding against the trust and also sue the shareholder to enforce the payment guarantee. The co-op has the same recourse as it always has under the provisions of the proprietary lease.