CO-OPS OF THE RICH / FAMOUS: SHOULD YOU LET LIMITED LIABILITY CORPORATIONS BUY?

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Sometimes a family will create a trust if a parent is buying an apartment on behalf of his or her adult child. But in the majority of cases, family trusts have more to do with estate planning.

There is also a potential benefit for a board to allow a family trust. If a shareholder plans to leave his apartment to an adult child who wants to live there, the board can vet the child long before the parent's demise. If the child doesn't meet the board's muster, that can be resolved ahead of time. And as with LLCs, co-op boards should require the shareholder to sign a personal guaranty and set up an escrow account for maintenance charges.

Despite all the protections co-ops can demand, however, many boards simply recoil at the idea of an entity owning an apartment and won't allow it under any circumstances. And many attorneys advise against the practice, particularly in the case of LLCs.

"I personally don't like it," says Cronquist. "If you want to run your building as a place where people live and a place where people participate and treat their units as their home, I feel it's better to limit your purchasers to individuals."

Adapted from Habitat April 2012. For the complete article and more, join our Archive >>