Life Use Trust to Provide a Place to Live
This edition of the Koldin Report E-Newsletter reviews the use of a “Life Use Trust” to provide family members with a place to live. All prior newsletters are saved on our website. You can read them by clicking here.
For many reasons, you may want to provide for someone during his/her life, such as providing him/her with a place to live. Common situations are to support spouses of second marriages, siblings who live together, and children who have special circumstances.
Example 1: Mary is not in great health and has a daughter, Jane, who moved in with Mary to take care of her and help her remain out of a nursing home. Jane has lived with her mother for over 10 years. Mary does not want Jane to have to move out of the house when she dies. Mary wants Jane to be able to remain in the house for the rest of her life, but when Jane dies or decides to move out, she wants the house sold and the proceeds of sale divided among Mary’s 3 children.
Example 2: Tom and Jill are married. It is a second marriage and they each have 2 children of their own. Tom owns the home. On his death, he wants Jill to be able to live in the home for the rest of her life and on Jill’s death, he wants the home to be inherited by his own children.
Example 3: Sadie and Debbie are sisters. Sadie has 3 children. Debbie has no children. After Sadie’s husband died, Debbie moved in with Sadie and they have lived together for 15 years. Sadie wants Debbie to be able to remain in the home after Sadie dies. After Debbie dies, then Sadie wants the home to go to her 3 children.
Life Use In Beneficiary Clause of Will or Living Trust
In these examples, a common method of accomplishing their goals is to leave a life use of the home as part of the beneficiary clause of a Will or Trust. In Example 1, Mary’s Will could say: “I leave my home to my 3 children, subject to a life use being granted to my daughter Jane.” In Example 2, Tom’s Will could say, “I leave my home to my 2 children, subject to a life use being granted to my wife, Jill.” Sadie’s Will in Example 3 could also have similar language.
For families where everyone loves each other and there are no conflicts, simply granting a life use as part of a beneficiary clause can be sufficient. The problem occurs when unforeseen issues arise later on between the life owner and the remainder owners. Some examples of issues that can arise are:
(1) The remainder owners feel that the life owner is not keeping the property in good condition.
(2) The life owner fails to pay expenses such as property taxes, insurance, repairs, capital improvements.
(3) A major expense such as a new roof becomes necessary and the life owner and the remainder owners are unable to agree on how much of the cost each should pay.
(4) The life owner decides to rent the property to someone who the remainder owners do not like.
(5) The life owner decides to sell his/her life use to someone who the remainder owners do not like.
(6) The life owner would like to sell the home and move into a smaller home or apartment and the remainder owners are not willing to sell or they cannot agree on the sale price. The remainder owners are also not willing to use the proceeds of sale to purchase a new house or to use the funds to pay rent.
Although New York law does provide guidance on how some of the above conflicts should be resolved, if the deceased person provided greater detail of his/her wishes, conflicts can often be avoided. One important method to provide clear guidance and instructions to avoid future conflicts is by establishing a “Life Use Trust” as part of the beneficiary clause of a Will or Living Trust.
Life Use Trust
In all 3 examples above, the house could be left in a Trust where a Trustee or Trustees are designated to be the caretaker of the house. You can specify in the terms of the Trust whether the life tenant or the Trustee would be responsible to pay the expenses on the home.
Under the terms of the Trust, you can designate who the Trustee should collect the funds from to pay the expenses. For example, the Trust could say that the Trustee should collect funds to pay the taxes and insurance from the life tenant. The Trust could say that for major expenses such as a new roof, the Trustee should collect a specified percent from the life tenant and a specified percent from the remainder beneficiaries. You can also leave money to the “Life Use Trust” to be used to pay for certain expenses on the home.
The Trust could also spell out the rules for the right of the Trustee to periodically inspect the home to make sure it is in good condition and spell out the consequences if the Trustee determines that the home is not in good condition. For example, the Trust could say that the Trustee must notify the life tenant of what repairs are needed and give 30 days for the repairs to be made or the life tenant must vacate the property.
The Trust could also provide the rules for renting and selling the property. For example, the Trust could say that the property can only be rented upon the joint consent of the life tenant and the remainder beneficiaries. The Trust could also say that if the property were sold, what percent of the sale goes to the life tenant and what percent goes to the remainder beneficiaries. The Trust could also provide for when a successor residence can be purchased from the proceeds of sale for the benefit of the life tenant.
By setting up a Trust and spelling out all of the “rules,” future conflicts can often be avoided. Also, you may have your own ideas for how you want different situations handled that would be different from the default rules under New York law. A Trust allows you to override the default rules to meet your particular objectives regarding your home and taking care of your family.
A “Life Use Trust” accomplishes the goals of providing for your spouse or other family members and also preserving the inheritance of your children. One problem with establishing a “Life Use Trust” as part of your Will is that Wills need to be probated and this requires time and legal fees. Another option to consider is to establish your own Revocable or Irrevocable Living Trust. The beneficiary clause of your Living Trust can leave your assets into a “Life Use Trust” for your spouse or other family members on your death.
For a full discussion of Revocable Trusts and Irrevocable Trusts, please click here.
The Koldin Law Center, P.C. is available to review your family situation and help you decide if a “Life Use Trust” as part of your beneficiary provisions would be advisable for you. At the Koldin Law Center, P.C. with offices in Syracuse , New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. At the free initial consultation, we will review with you the advantages and disadvantages of Revocable Trusts and Irrevocable Trusts, along with other estate planning considerations including a Will, Power of Attorney, and Health Care Proxy.
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