Does this really happen?
It’s more common than you might assume. While Gordon could have updated his will and re-titled his house so that he and Blanche would own it with rights of survivorship, that might not have been what he wanted. It’s not unusual in second marriages for the spouse who owned the house to keep it in their name only – intentionally or by oversight – and have it pass to their kids.
How, then, could Gordon have reconciled two competing desires – i.e., for his kids to inherit his home and for Blanche to have a place to live?
Right of occupancy. A scan of the options available to Gordon reveals yet another application of a trust as an estate planning tool.
To achieve his two objectives, Gordon could have:
- created an individual revocable trust;
- named himself as the initial trustee;
- named one of his kids as his successor trustee;
- conveyed his house to the trust; and
- granted Blanche a “right to occupy” for some period of time.
A right-to-occupy provision can be worded (and the trust appropriately funded) to address the grantor’s intentions, the occupant’s needs, the residual beneficiaries’ interests, and the many issues that can arise from the resulting situation. The language of the trust should answer these questions:
- Who has the right of occupancy? This is presumably the surviving spouse (in our example, Blanche), but what if Blanche has kids of her own who need a place to live? Or Blanche re-marries and wants to continue to live at Gordon’s home with her new husband?
- How long does the right exist? The trust can state that the right of occupancy will expire after a specific time period following the grantor’s death or will continue for the rest of the occupant’s life or for as long as the occupant wishes to stay.
- What might trigger an early expiration? The trust can provide that the right to occupy would expire if the occupant moves out for a minimum period of time.
- What about the costs of maintaining the property? The trust should assign to the occupant or the trust itself the responsibility for costs related to the home’s upkeep, such as ongoing expenses (routine repairs, basic utilities, landscaping, property taxes, HOA fees, etc.) and major capital improvements (replacement of the roof and HVAC equipment, pool re-plastering, etc.).
A right-to-occupy provision combines two areas of law – sophisticated estate planning and real estate law – that parties should never tackle on a do-it-yourself basis.
Even under the best of circumstances (Gordon’s kids are wealthy, love Blanche, and want only the best for her), the formalities of this arrangement must anticipate that something will go wrong and how it will be addressed. For example, what if the good relationship between Blanche and the kids goes sour? Or one of Gordon’s kids falls on hard financial times and is desperate to get their money out of the house? These and other eventualities need to be identified and buttoned down from the outset.
What about the mortgage? This has little to do with Blanche’s right-of-occupancy arrangements, but it does introduce another planning issue.
Let’s assume that Gordon had a mortgage on his home. If the lender learns of Gordon’s death, it will likely call the loan due, and Gordon’s kids would need to be prepared to pay it off or refinance the mortgage.
The better solution would have been for Gordon to purchase a life insurance policy that, upon his death, would pay off the mortgage.
Your change in marital status. Last month’s feature article, “Is It Time for an Estate Plan Review? You Be the Judge,” included a list of triggering events that could give rise to an estate plan review.
Those events included, at #6, “Your Marital Status Has Changed.” If you have been married, divorced, separated or widowed since you executed your estate planning documents, a review of your plan and its related legal and ownership documents could be very important.
It can help you head off a Blanche-and-Gordon scenario or even more serious consequences of an obsolete estate plan.
