Right of Occupancy, Right for You?

Family dynamics can change drastically when one member passes away. Particularly if a surviving spouse remarries! The question of what happens to the family home can make the unique relationship between the children and the new spouse even more complicated. If done correctly, setting up a Right of Occupancy trust can help you avoid these complications. Right of Occupancy might be a good decision for your family even if you’ve not remarried but you have a specific beneficiary that you would like to continue living in your home.

What is a Right of Occupancy?

A Right of Occupancy allows the client to designate a beneficiary to live at a property, even after they pass. It can also provide for the expenses to maintain the property. When setting up a Right of Occupancy, you can choose how long the arrangement will last. This can be a designated period or until the beneficiary passes away or leaves the property.

Right of Occupancy v. Life Estate

The most major difference between a Right of Occupancy and a life estate is that the beneficiary of a life estate can sell or transfer their interest in the Property. With a Right of Occupancy, the ownership interest remains within the trust. The beneficiary has the right to stay in the home for a predetermined amount of time or until they move or pass away. As with anything, there are drawbacks to a Right of Occupancy. Owning real estate comes with certain tax benefits and some states have homestead provisions that limit how much a home’s property tax can increase each year. Those benefits may not be available when the property is held in a Right of Occupancy trust.

Things to Consider

When considering if a Right of Occupancy provision is right for you, remember that the beneficiary typically must occupy the home or property to retain the right. The beneficiary also does not have an ownership interest that can be sold or transferred to another individual. You will also have to decide whether the trustee or beneficiary will pay the utilities. The client can also select who is responsible for paying the mortgage (if there is still one on the home or property), property tax, home insurance, and the maintenance of caring for the house/property costs. When the client passes away it may create a different dynamic in the family. By stating the client’s wishes for the property, it can reduce conflict among the trustee, beneficiary, and the property’s ultimate heirs (remainder beneficiaries) if the client plans to offer a Right of Occupancy. Unfortunately, this may not eliminate all conflict; for example, other beneficiaries may be frustrated by the Right of Occupancy provision because they believe that they could sell the home for a larger inheritance instead of allowing the occupant to continue living there. Similarly, heirs might feel disappointed or angry that one beneficiary is allowed to remain in the home while the others do not have the option to live there after your passing.

If you are still interested in the idea of a Right of Occupancy, please give our office a call to discuss updating your trust or creating an estate plan to reflect this wish. You may schedule a consultation by emailing Courtney@LawDublin.com or calling the office at 614-582-2875!