Gift of REAL Property in Trust?
Posted on Tue, Dec 09, 2008
Query: I'm drafting a trust where an individual wants to leave real estate to another individual in trust. In the past, I have modified the "Monetary Gift - Trust" option to fit...but don't see why a "Specific Property in Trust" section couldn't easily be added.
Response: The practical concern I've always had about this type of provision is that it seems to me that more than the real property must be contributed to the trust. How will the financial obligations that attend managing that property be satisfied? There will be property taxes, improvements, insurance, maintenance, etc. that require money to fund. If an item of specific property (real or personal) is put in trust, how is that property maintained?
A "dry" trust owning real property (a residence) and no liquid assets or income is a real problem , one made even worse if the property is mortgaged. Principal payments on the mortgage inure to the remainder beneficiaries. If the beneficiary has to make the mortgage payments, each payment constitutes a completed gift to the remainder beneficiaries.
Trust Beneficiary occupants are theoretically the same as life tenants, except there are generally no common law rules governing trust beneficiaries equivalent to the well developed laws governing life tenants and remainder beneficiaries.
It's best to draft to meet the specific needs and provide for payment of taxes, capital improvements, etc and be sure there is cash to support the real property.
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