More and more trust documents are being created due to an aging population. I’m seeing increasing problems administering trusts with provisions that allow family and loved ones to reside in a property included in the trust.
Problems that commonly occur are payment of home expenses, exclusive possession of the premises, and downright disagreements among the beneficiaries and the trustee who’s administering the trust.
How the trust is phrased can make all the difference in these situations. For example, a trust that creates a life estate versus a right to occupancy can make all the difference in trust administration. A life estate conveys an interest in a beneficiary, usually for the life of that beneficiary, to reside at the property. The so-called life tenant has the right to exclude others from the property, and a trustee would not be allowed to tell that life tenant by whom or how the property could be used (with limited exceptions). The life tenant, for example, could rent out the property to others or even sell his or her life interest. A life estate does carry responsibilities, however. A life tenant is typically required to maintain the property and pay the expenses.
A right to occupancy, on the other hand, is the right to occupy a property for life or a specific term. This provision is commonly used in estate planning to allow a loved one to stay on a property. However, care in drafting the specific terms of the occupancy is needed by the trust drafter since occupancy rights are a mixed bag with the courts. Many disputes between the occupant and the trustee can occur, especially if the parties generally do not get along. Good planning requires thinking ahead of time about potential problems.
If you know in advance that there will likely be a trustee/occupant problem, you might want to appoint someone to serve as trustee who may not have problems with the occupant. You should also think about who is going to pay for costs and expenses of the property. If you instruct the trustee to pay for them from the trust assets, you might want to set aside a specific amount of money to pay for those expenses. If you instruct an occupant to pay for those expenses and clearly know they will not be able to handle them, you might be making a gift that is going to cause a lot of drama.
Good drafting and a little bit of foresight can eliminate a lot of legal drama later, when it is least needed. So if you want to allow someone to live in a particular piece of property, give your trustee and your beneficiaries the tools to succeed.
