Q. What are the advantages of having a trust buy an apartment? How is it done? And how hard is it to find co-ops that allow it?

A.   There are several great reasons to form a trust to buy an apartment, according to our expert panel.

“The primary ones are being able to avoid probate proceedings, as the apartment is not owned by the individual using it, and for elderly shareholders, it prevents the apartment from becoming an asset for Medicare coverage and, more importantly, reimbursement,” explains Dean M. Roberts, a real estate lawyer.

Additionally, explains real estate attorney Robert Braverman, a trust that meets the requirements of an “asset protection” trust will shield the apartment from claims against creditors.  And if it’s an irrevocable trust (one that can’t be undone), any appreciation in value would not be taxed as part of the estate. 

“Setting up the trust is fairly straightforward," says Roberts, "but should be done as part of an individual or family’s financial and estate planning."

A trust is created and the shares (in a co-op) or deed (in a condo) is issued to the trustee.  While condo boards usually don’t have a right to approve the transfer, co-op boards do, notes real estate lawyer Eric Goidel.

Co-ops usually require that “the proposed resident of the apartment executes a trust ownership agreement,” says real estate lawyer Jeffrey Reich.  In the agreement, the resident personally guarantees maintenance payments and assessments, confirms that board approval will be required for any future transfer of the apartment, and agrees to limits on who can live in the apartment.

If you already own the apartment, it is still possible to transfer ownership to the trust. 

“This protects the apartment from claims against the individual who owned it before or for whom it is purchased," says Roberts. "One issue to look out for is whether the transfer triggers a flip tax, as there is a clear change in ownership.”

By and large, our panel of real estate lawyers say co-ops have become much more open to purchases by trusts over the past few years, as they become more educated about how to protect their interests.

But real estate broker Deanna Kory says she hasn’t noticed any shift in a kneejerk anti-trust stance by co-ops “terrified about not having control over who is the owner and occupant.”

“I’m grappling with this time and again as we get asked this question all the time,” says Kory. “It is quite hard to find a co-op willing to sell to a trust.”

Financial advisor Gregory Olsen predicts that if anything, the demand for trust purchases will increase among buyers: “Now that the unified credit shelter limit and lifetime gift have been aligned and raised to $5 million per spouse, you will see this more and more.”

 

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