What To Do with the Family Home: Right to Occupancy vs. Life Estate

A common problem in blended families is what happens to the family home if the spouse that owns the home passes away first. A right to occupancy or a life estate provided in the revocable living trust is a common method to handle this issue. If drafted properly, either option can allow the surviving spouse or domestic partner to live in the home but it is important for the stepparent and the stepchildren to understand exactly what interest they have and their responsibilities for the property to minimize conflicts. The intent of this blog is to provide a comparison of the two methods to help determine which is the best fit for your family situation.

Right to Occupancy

The surviving spouse or partner may be given a right to occupy the home for the remainder of his or her lifetime. However, the right to the use of the property may be available only while continuing to occupy the property. The surviving spouse or partner has no ownership interest in the home and title to the home is held by the trustee of the trust during this time, and the trustee is usually responsible for payment of any mortgage, insurance, property taxes and maintenance costs. The right to occupy is a personal right and therefore cannot be sold or transferred. The home generally cannot be sold or transferred during this period either. An example would be if a widow remarried and wanted her new husband to be able to live in the home she owned as her separate property if she died first but still have the house pass to her children.

Life Estate

Another option for the surviving spouse or partner is to be given a life estate in the family home. A life estate differs from a right to occupy by giving the surviving spouse or partner a form of legal title to the property that can be sold. If a surviving spouse or partner wants to move, then they can choose to sell or rent their interest in the family home. For instance, a surviving spouse with a life estate can choose to sell his or her interest in the real property to a third party who will retain the right to the home for the remaining life of the surviving spouse. After the surviving spouse died, the property passes to the stepchildren as remainder beneficiaries.  

Common Conflicts

Unless properly drafted and designed to address common issues that arise in these situations, disputes are likely to arise. The main reason for this is the competing interests of all the people involved. Conflicts can easily arise between the trustee, the person who holds the right to occupancy or the life estate, and the remainder beneficiaries who receive the property after the surviving spouse or partner dies. Considering the above example, the trustee needs to make sure not to improperly interfere with the survivor’s rights to occupancy or life estate while at the same time ensuring not to improperly handle any competing interests of the children, the remainder beneficiaries. The children may not appreciate the fact that their mother’s new husband is living in the family home, and they may feel like their future inheritance is wasting away when it could be sold or rented for much better value to them. Without proper drafting, things such as the payment of expenses for the home can quickly become an argument between everyone involved.

A properly drafted trust should be written to minimize these conflicts. Setting up a trust with a right to occupancy or a life estate can be very tricky due to the many variables at play. If you want to consider adding a right to occupy or life interest to your estate plan, you should consult with an Estate Planning Attorney to help make the best decision based on your individual circumstances.

The legal information in this blog is not intended as legal advice but only general information and should not be used as a substitute for consultation with an attorney. [Disclaimer] Our estate planning team at Naimish & Lewis can advise you on estate planning issues that are commonly faced in blended families. To schedule an initial consultation with an attorney at our firm, please contact us.