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Why It’s Tough To Transfer Ownership Of A Co-op To An Heir

I have not done research into each state’s transfer on death (also known as TODs) instruments, but nonetheless, it would be worthwhile noting what they are.

A transfer on death instrument is a document prepared by an owner of real estate, recorded on his or her property, directing who the next owner of the property should be in case of the current owner’s death.

A transfer on death instrument is a newer way of avoiding probate court, avoiding the requirement of having a will and avoiding the option of setting up a living trust to handle the transfer of property upon the death of an owner. Each of these different methods has positives and negatives.

Let’s start with the traditional will. As we have often recommended, the owner of a residence should have a last will and testament drawn up by an attorney. This document itemizes where the owner wants all of his or her real estate to go to after he or she dies, and details who should get all of his or her personal property.

Upon death, someone has to present the will to the court, and the court approves the executor of the will. The executor of the will, in turn, has the right to transfer the property in accordance to the owner’s wishes. If the property is sold, the executor may have to go to court and get the sale approved.

The executor can use his or her appointment to go to banks and other financial institutions to have funds from those institutions transferred to the beneficiaries under the will. Cars can also be sold using the power given to the executor to manage the personal assets of the estate.

However, the use of a will, having to go to court and getting court approval to transfer of ownership of a home may cost money in terms of legal fees.

To avoid probate costs and legal fees, many people try to avoid probate court and look for other ways to transfer their property to their loved ones.

If a person uses a living trust, the living trust doesn’t have to go through probate to transfer a home. The internal workings of the living trust will suffice to transfer ownership of the property directly to the new owners of the home.

For an elderly mother seeking to transfer the co-op to her heirs, here’s how the living trust would play out upon her death: The living trust would name a successor beneficiary. That successor would become the owner of the home without having to go through probate court or having to transfer ownership interest in the home by other means. The transfer would be automatic in most instances.

The simplicity of the living trust is why many people favor them. However, setting up a living trust can be expensive. You’d have to hire an attorney to draft the documents and then have to transfer homes and other assets into the name of the trust.

Over the last 10 or so years, the concept of a transfer on death document has come into existence. It generally only applies to real property and only certain types of real property, generally residential real estate.

The concept is simple and inexpensive. A deed is drafted that basically says that upon the death of the owner, the home passes to a certain person. The drafting of the document is relatively inexpensive and the recording of the document likewise doesn’t usually cost much.

While the concept is simple, many title companies, closing agents and real estate attorneys aren’t fond of TODs. Why? The transfer on death document can be revoked, the grantee of the document may not be living at the time of the transfer, the owner could have sold the property prior to the death, and many other situations can crop up that make real estate professionals frown on these types of documents.

Some title companies may charge an additional fee when dealing with title issues on transfer on death instruments. And there may be other circumstances that could cloud the ownership of the property.

Now that we’ve gone through the various options and the most common issues you’ll find with each, we’re sorry to say that with most cooperative buildings, you can’t use a transfer on death document.

In a cooperative building, you generally own stock in the cooperative that is equal to your specific unit, and that ownership is evidenced by a stock certificate. And you also get a lease to the residence giving you the right to live there.

At its most basic level, if you use a TOD, there’s no way to record the TOD against the co-op because you don’t actually own the real estate, as you would with a condo. And you can’t record a TOD for shares of stock, which is all you get with a co-op.

That’s why they’re not generally used with co-ops, and you see them used more frequently with condos, townhomes and single-family homes. Co-op boards often frown upon the transfer of an ownership interest in the home without property interviews and board approvals, which is why when you leave a co-op to your heir in your will it may be subject to board approval.

That doesn’t mean that it’s impossible, and there may be certain types of co-ops that could have rules allowing it, but it seems unlikely. For more details, please talk to the co-op board in question or a local real estate attorney.