Estate planning is all about safeguarding your interests and those of your loved ones. This task can become challenging when a loved one requires additional support after your passing. While you may wish to provide for this individual, it’s essential not to do so at the expense of others you care about. A right of occupancy trust is a solution that addresses this concern, particularly concerning property use and ownership.
What is a Right of Occupancy Trust?
A right of occupancy trust allows you to designate a beneficiary to live in your residence or use another piece of real estate for a specified period or until the beneficiary passes away or relocates. To implement this, you include a provision in your last will and testament or trust agreement, placing the property into a separate subtrust managed by your chosen trustee.
This provision may allocate funds to the subtrust for property maintenance expenses and include instructions outlining the beneficiary’s rights and responsibilities and those of the trustee. The trust instrument also specifies what happens to the property once the beneficiary passes away, such as transferring the property to another beneficiary, selling it (with legal advice to avoid adverse effects on homestead status), or holding the proceeds in trust for someone else’s benefit.
Key Considerations for a Right of Occupancy Trust
When creating a right of occupancy trust, consider the following to ensure your wishes are clear:
– Is the tangible personal property (e.g., furniture, appliances) included with the residence?
– Will you set aside funds for administrative costs, taxes, utilities, insurance, and mortgage payments, or will these be
the beneficiary’s responsibility?
– Must the beneficiary live at the residence full-time?
– Can the beneficiary allow others, such as a spouse, friend, or companion, to live at the residence?
– Does the beneficiary have lifetime occupancy rights or do certain events (e.g., remarriage, long-term care admission) terminate their use?
Benefits of a Right of Occupancy Trust
– Protecting Multiple Interests: If you own a residence solely and wish to provide a place for your surviving spouse without disinheriting children
from a previous relationship, this strategy ensures all parties are protected.
– Preserving Family Property: If you have family property that you want your surviving spouse to use but ultimately wish to pass to your children,
a right of occupancy trust helps maintain the property within the family.
– Securing Dependent Loved Ones: For a loved one dependent on you, a right of occupancy trust ensures they have a place to live after your passing
while protecting the home for future beneficiaries.
Building Your Support Team
To ensure your wishes are fulfilled, assembling a support team is crucial:
– Financial Advisor: Evaluates your financial holdings and advises on funding the trust for property maintenance.
– Insurance Agent: Ensures proper insurance coverage through different ownership stages and discusses life insurance options if needed.
– Tax Advisor: Discusses tax implications, including income tax deductions, property tax exemptions, and potential tax uncapping during trust administration.
We are here to guide you through the options for handling your property and providing for your loved ones. Once you decide how to proceed, we can document your wishes in a legally enforceable manner, ensuring your plan runs smoothly and your loved ones are cared for.
If you want to learn more about right of occupancy trusts or other estate planning strategies, schedule an appointment with us today.
