Shared Home Ownership Methods

It is very common that unmarried people become owners of real estate, (shared home ownership). Typically, they effectively become partners with each owning a separate “tenants in common” interest in the property. Other times they may own the property in “joint tenancy” wherein after one owner dies, the survivor owns the whole property. Other times, they may form a Corporation or LLC which would own the real property and they would each own a percentage of the shares of the entity. In other words, how people hold title to real property affects the rights of their heirs after they pass away.

But there is a unique situation that arises in senior communities such as Del Webb Sun City Lincoln where I live. Widowed or divorced Seniors with separate families are forming relationships and, in many cases, want to buy a home together.  But they are concerned about the reaction of their families as well as handling financial issues.

So they must deal with important questions about shared home ownership such as:

1)    What if only one of us has the money and income to make the purchase?  Does the non-paying person get an equal share in the ownership?

2)    Who pays for the maintenance and any improvements of the Property?

3)    What happens when we sell the Property?

4)    What happens if we later get married?

5)    What happens if one of us dies?

……..and perhaps the most worrisome question:

6)    Will my children reject this new person fearing that he will take all of my assets and leave nothing for them to inherit?”

For most people, questions 1-5 can be addressed through some form of co-ownership agreement, such as a “Tenant-in-Common (“TIC”) Agreement”.  However, to also satisfy question 6, we have found that the most effective solution is a special form of co-ownership agreement called a “Co-Ownership Trust”.

As you may know, a Trust is a document created by an individual or couple which provides for management of their assets during life and distribution of their assets to their beneficiaries after death.  While a Will can do the same, only a Trust can enable your Beneficiaries to avoid the time, trouble, and high cost of Probate. Plus, a Trust can maximize Estate Tax exemptions.  For these reasons, most seniors have Trusts in place when they come to see us.  If the Trust included a now-deceased spouse, portions of the Trust likely have become irrevocable.  So, any new co-ownership agreement must not disturb their existing Trusts.  The Co-Ownership Trust solves this problem.

The Co-Ownership Trust is a completely separate Trust set-up solely to govern the purchase and operation of the real property that the couple wishes to acquire.  Rather than making the purchase in their own separate names, they each make the purchase as Trustee of their separate pre-existing Trust.  Any monies that they contribute to the purchase, maintenance, and improvement of the real property is paid from their separate Trusts, generally from the Survivor’s share.  And any profits from subsequent re-sale go back to their separate Trusts for their separate use and ultimately for distribution to their original Beneficiaries.

So how does this satisfy the concerns stated above?

What if only one of us has the money and income to make the purchase?  Does the non-paying person get an equal share in the ownership?
Generally the co-owners have an equal ownership interest and an equal say in the decision concerning the Property.  But, the monies paid by each are accounted for and can be reimbursed first from the proceeds of any subsequent sale of the Property.

Who pays for the maintenance and any improvements of the Property?
While each owner would have an equal responsibility to pay the costs of owning the Property, just as with purchase funds, the monies paid by each are accounted for and can be reimbursed first from the proceeds of any subsequent sale of the Property.

What happens when we sell the Property?
As referenced above, any disproportion in monies paid for the acquisition and operation of the Property are reimbursed first from the sale proceeds.  The remaining proceeds are divided equally with each share going back to each person’s separate Trust.

What happens if we later get married?
Assets acquired before marriage are presumed to be separate property so a later marriage will not change the separate interests.  However, separate property interests can become community property interests after marriage if the parties commingle their assets together and don’t keep their finances separate. The benefits of the Co-Ownership Trust include: (1) since the only co-owned asset is the real property and perhaps a bank account for property expenses, any risk of conversion to community property could only affect the co-owned assets… not the assets of each owner’s separate Trusts; and (2) even this risk is substantially dealt with through the language of the Co-Ownership Trust which establishes that the interests remain separate property.

What happens if one of us dies?
Generally, the parties desire that the Survivor would have a right to continue living in the co-owned Property and that party would then be responsible for all further expenses of the Property. The survivor also generally would have a right to buy-out the interest of the decedent.

Will my children reject this new person fearing that he will take all of my assets and leave nothing for them to inherit?
Children of a prior marriage and beneficiaries of an existing Trust often fear that a parent’s new relationship will place that parent’s assets at risk and adversely affect both the parent as well as the beneficiaries’ interests. However, a Co-ownership Trust isolates and protects each party’s existing separate Trust relationships and does not give the new person any control or access to the other’s separate assets.

SUMMARY:
For many people, particularly seniors, a Co-Ownership Trust provides the best means for a couple to acquire real property together while protecting their separate assets from risk of invasion or control by the new party.

For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing our clients with their estate planning, real estate, and business needs.  Check us out on the Web at: www.bpelaw.com.  If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.

This article is not intended to be legal advice, and should not be taken as legal advice.  Every case requires review of specific facts and history, and a formal agreement for service.  Please feel free to contact us if you need legal advice and are interested in seeing if we can help you.

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