Protecting Co-op Interests: How Trust Transfers Can Be Made Easier

It’s increasingly common for co-op shareholders to seek to transfer their ownership to a trust. The purpose is for estate planning and avoiding the lengthy administrative process of probate, which allows the execution of the deceased's wishes in accordance with their will. The big concern about trusts is that they make it more complicated for boards to identify who is responsible for the apartment. However, there are protections that can be added to the separate trustee arrangement that can give your board reassurances when it comes to trust transfers. 

RISKS WITH TRUSTS  Traditionally, co-ops have frowned upon trust ownership, just as they may frown upon any ownership by an entity such as a corporation or limited liability company. The reason is financial. Once an apartment is part of a trust or company, the board is then dealing with the principles of the entity rather than an individual shareholder. When maintenance goes unpaid, who takes responsibility? These concerns can be addressed by a set of conditions the trustees must agree to as part of the transfer arrangement. 

GETTING CONSENTS  In some cases, the grantor — the person who creates and funds the trust — is the actual shareholder as well as the trustee. In other setups, the trustee is living far away and the resident is not the shareholder. Either way, a set of additional requirements or conditions can help boards navigate these types of transfers. What we've done is have the trustee consent to being able to be sued in New York even if they are living in a different state. We also take a security deposit from the trust and ensure that we have a copy of the apartment keys given to the management office, plus an alarm code if there’s additional security. If there's a fire or a flood in the apartment and nobody's home, the board can get access, which will protect the co-op and the other shareholders from any damages involved.

SECURING GUARANTEES  Another protection is a guarantee agreement whereby the occupant personally guarantees the financial obligations under the lease. And a provision can be added stating that should the occupant die, the trustees must resolve whether the apartment will  be sold or the trustee will occupy the apartment within one year. Recently, at a co-op in Riverdale, two brothers disagreed about whether an apartment, which was in a trust, should be sold after the death of their parents, who were the occupants and grantors. As the dispute dragged on, the brother who was the trustee stopped paying maintenance. The co-op filed a lawsuit against him based upon a written guarantee he had signed when the shares were first transferred to the trust. And the court upheld the contract. 

TAKEAWAYS Trusts are a popular estate planning tool. Over the past few years, the waiting period for probate has extended to months and in some cases as long as a year. If the shares are in a trust, the trustee doesn’t have to wait that long period of time before selling the apartment. If the co-op is well protected with watertight agreements, I think that it's worth offering this option to shareholders.