How many of you out there are in 2nd and 3rd marriages? Raise your hands. How many of you raising your hands are agreeing to leave your spouse a right to occupy your Separate Property home or your one-half community property interest in the home after your death? OK, now how many of you have included such a provision in your Living Trust? As I suspected, not that many. OK, for those who have included such a provision in their Living Trust, how many of you have specified whether the Surviving Spouse or the Trustee of the Living Trust is to be responsible for the
following:
1. Mortgage payments, if any;
2. Real estate taxes;
3. Property insurance;
4. Repairs and maintenance;
5. HOA fees, if any;
6. Landscape maintenance?
Wow, less than 5% of you!
OK, let’s dig a little deeper. How many of your have provided who could live with the Surviving Spouse? Can he/she include a new spouse, their children, a new “friend”? Has that been spelled out in your Living Trust provisions? Shouldn’t it be?
May the Trustee sell the property to avoid foreclosure should there be no funds to continue to cover a mortgage?
Did you grant a Life Estate or a Right to Occupy the residence?
A Life Estate allows the Surviving Spouse or some other designated beneficiary the right to enjoy the residence and/or the benefits thereof for his/her entire lifetime where a Right of Occupancy could terminate when the Surviving Spouse or beneficiary permanently vacates the residence and moves away to another location.
All of the above can cause lasting stress on the Trustee and significant costs to the Trust unless spelled out in the Living Trust document. To avoid costly Court legal proceedings, you should make sure these issues are not overlooked. The litigants are usually the Surviving Spouse and the children of the deceased spouse. When a Living Trust is silent on these matters, contests heat up. The Trustee is looking for money from the Surviving Spouse and the Surviving Spouse is looking for money from the Trustee to cover monthly and annual expenses.
If the Trustee funds are dwindling, the monthly mortgage still needs to be paid. Does the Trust provide for the Trustee to sell the property to avoid foreclosure when the property is subject to a Life Estate or Right of Occupancy? Is this detailed in the Living Trust? What if the person enjoying the Life Estate or Right of Occupancy vacates the property for a considerable time? Can the property be leased for income?
What if the holder of the Right re-marries or brings in a “partner” to live with in the residence? Does this violate the Life Estate or Right of Occupancy provision in the Trust?
In my consultations, I want to specify whether we are including a Life Estate or a Right of Occupancy. I want to know who is going to be responsible for what expenses and for what period of time they are to be paid. I want to include provisions for the Trustee to sell the residence, if necessary, and the conditions allowing for such sell, especially if there is a pending mortgage. I want to specify, who is allowed to live in the residence with the Surviving Spouse or family member holding rights to occupancy or a Life Estate.
California law is not clear on these issues involving Rights of Occupancy should the Living Trust be silent. It is imperative that you address these matters in your Trust should a Surviving Spouse or other family member be provided any rights to occupy the home after your death. Or, you can travel the road of a frustrated individual who I recently saw for consultation. Her mother had invested $400 in a Trust Mill Living Trust which included a Right of Occupancy for a second husband. $25,000 in contested Court proceedings later, the daughter, as the Trustee, was waiting on Court instructions as to who was responsible for the various expenses associated with the home. That $400 Living Trust investment has now cost the family over $25,000 because of the failure to receive adequate legal advice by a competent attorney.