By Stephen J. Budihas
Shareholders, Directors and building managers often have inquiries as to their options when it comes transferring shares to family members.
First and foremost, when considering transferring one’s shares in the Corporation, shareholders should always seek professional counsel since individual circumstances vary considerably; the process may be an intricate one involving much legal preparation and review; and in almost all cases the Corporation’s consent is required and the Corporation’s attorney will be asked to review the application in order to protect the Corporation’s interests. Further, attorneys categorically remind us that issues of transfer to family members are not simple and do not lend themselves to short summaries. That said, we can attempt to provide some basic information and reminders, which should only serve as groundwork for beginning the personal research that remains every individual’s responsibility:
First, shareholders need to focus on the reason for the transfer and decide whether they are trying to save on estate taxes or on probate costs involved with their will and administration of their estate. While some trusts and other devices may avoid probate costs, in most cases they don’t save on estate taxes and the assets, such as the apartment, are still in their estate for estate tax purposes but can be transferred without going to the Surrogate’s Court to probate the will. These estate planning and tax issues are pretty complex and should be done only in consultation with a trained attorney. The professional should also be familiar with Elder Law issues and requirements for Medicare and Medicaid eligibility and planning.
Second, the transfer to a relative by will and its executor after probate, or by a trust through its trustee to a beneficiary family member, both require an application to the co‐op’s Board of Directors and approval of the family member, unless it is a spouse (per the provisions of many proprietary leases). The lease provision for board approval usually states that this approval shall not be unreasonably withheld to a financially responsible member of the shareholder’s family. If the bequest under the will or transfer to a beneficiary under a trust is not to a family member, then board approval is required and no reasonable standard is involved ‐‐ just like a transfer to any purchaser and the board can approve or reject the application in its sole discretion (subject to the prohibitions on discrimination).
The fact that this type of transfer by will or by the trust is subject to approval by the Board may be surprising to many and can cause some confusion unless it is taken into consideration when doing the planning. So, while shareholders can make provisions in wills and trusts for transfers of their apartments to a family member, board approvals and applications are needed just like in any other sale or transfer. Although shareholders can undertake to use these possible tools as part of estate planning (either for tax purposes or to avoid probate) the Board approval process cannot be avoided.
There is one method by which a transfer to a family member can usually avoid Board approval after the death of a shareholder and that is to ask to transfer the apartment prior to the death of a shareholder. This may be accomplished by a direct transfer or by adding the family member or other person as a joint tenant with right of survivorship. If this joint ownership is done, then the transfer would be outside of the probate proceeding, if any, involved with the estate after the death of one of the shareholders and no application would be needed at that time since the board had already approved the transfer. (Of course this has other issues for the shareholder regarding co‐ownership of the apartment at the present time that should be considered and dealt with during the consultation with an attorney).
These comments are meant to only provide some basic information and make you aware of some of the issues involved in thinking about a transfer of the ownership of apartment (shares) to a family member. Nothing stated herein should be taken as legal advice. It is simply hoped that the information is helpful; and once again, it cannot be strongly enough underscored that a qualified attorney should be consulted if you are interested in this type of planning.
You may be interested in learning more about the complexity of trust transfers.
Examples of some of the documents that your attorney may prepare and provide you with are: