Why is real estate often overlooked in special needs planning?
Special needs planning is difficult. Now add the idea of when, where, how, and with whom a dependent resides. Some of the obstacles to a housing plan are the cost of a condo or co-op, location, timing, ownership, and whether to include other families in addition to the uncertainty of when a dependent is ready to move.
Who to have the housing conversation with?
At Stuart Flaum Advisors, we have conversations and arrive at solutions with families regarding housing and apartment ownership. Thank you, Ronda Kaysen, ESQ for your recent insightful comments in the NY Times Real Estate Section. Apartment ownership is very important in special needs planning. We agree with your assessment. We recommend families arrive at the same conclusion regarding co-op and condo ownership for people with special needs.
This is a real example of an apartment purchase for a person with special needs:
Q: My spouse and I purchased a studio apartment in a New York City co-op for our adult son, who has special needs and is able to live independently with the support of an agency. We recently asked the co-op board to allow us to transfer the property to an irrevocable trust so that when we die he will still have a place to live. The board denied our request. Now we are in a quandary. Our son cannot inherit property directly or he will no longer be able to receive the government benefits that support him. How do we manage this situation?
A: Parents can leave a co-op apartment to their children in their will or in trust — but that doesn’t mean their heirs will necessarily end up with the right to own or live in that apartment.
In most cases, a co-op board has enormous latitude to approve or deny the transfer of the shares and the proprietary lease. “And if they deny it, the apartment gets sold and the children get the equity,” said Mindy Stern, a partner in the Manhattan law firm SSRG who specializes in real estate, trusts, and estates. “Just because the will says ‘I’m leaving it to my kids,’ that doesn’t give them the absolute right to acquire the shares or live there.”
In some cases, the proprietary lease says that a board won’t unreasonably withhold consent to transfer the apartment to a financially responsible family member, “but few if any extend that concept to include trusts,” Ms. Stern said.
You could wait to have the situation resolved after your death, leaving clear directives to the executor of your estate about what to do should the board reject a request to transfer the property into a trust for your son. But that leaves everyone in a precarious position, with years of uncertainty ahead.
As an alternative, you could sell the co-op now, put the proceeds in a special-needs trust and buy a condo through that trust, moving your son at that point. Unlike co-ops, condos generally allow transfers within estate planning, without requiring approval. Although this course would involve significant upheaval, you’d have more peace of mind. Before you buy the condo, though, make sure an estate and trust attorney reviews the building’s rules on transferring the unit.