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  • Amy Privette

Decoding the Right of Occupancy: a planning tool for matters of the heart & home

The Right of Occupancy provides peace of mind that your loved one will not be rendered homeless because of your untimely passing.

Are you caring for an elderly parent or disabled sibling and concerned they might end up homeless if something happens to you? Feel torn between wanting to pass the family land to your kids yet needing to provide your new spouse with a place to live should you die first? The answer to your worries might be setting up a “Right of Occupancy” in your trust.

A Right of Occupancy directive allows you—the trust creator—to clarify important aspects about the property such as (1) who will own the property, (2) who is allowed to live on the property, (3) how long the occupant can stay there, and (4) who is responsible for paying the bills associated with the property. If the answer to “who will own the property” and “who is allowed to live on the property” is the same person or persons, then you do not need to set up a Right of Occupancy. If, however, you would answer those two questions differently, then a Right of Occupancy can be highly beneficial.

Who will own the property?

During your life, the trust owns the property. That’s the easy part. What you must decide is who will inherit the property after your death. There is no one-size-fits-all answer. The designated property owner may be your kids. It may be your spouse. It may be your siblings. It may be a land trust. It may be a family partnership or LLC. You may even decide to have your trust retain ownership of the property after your death and allow your Trustee to decide when the proper time would be to sell.

Who is allowed to live on the property?

This is the crux of the issue because the person(s) to whom you are giving the Right of Occupancy is(are) not the designated property owner. The occupant might be your elderly parent or disabled sibling. It could be your new husband or wife. It might be your 20-something child who moved home at the start of the pandemic and never left. It may even be your recently divorced best friend who needs a safe haven for her and her kids while she figures out their next step.

How long can that person remain on the property?

Often, the occupant has the right to live in the home until death or until he or she voluntarily moves elsewhere (“moving” would not include a hospital stay but could include transferring to a nursing home or full-time residential care facility). Others set it up so that the Right of Occupancy expires after a certain period of time. For example, occupants may need to time to re-enter the work force, improve their credit score, locate a roommate, and eventually find a new place to live. The Right of Occupancy could be structured to allow time for these things while giving the designated property owner assurance that this is not an open-ended, indefinite arrangement.

Who pays the bills?

There is no preset division for paying the bills. You choose how to set it up. Do make sure to be specific, though, so both sides are clear on what’s expected of them. The designated property owner could be responsible for major expenses like the mortgage, homeowner’s insurance premium, and property taxes whereas the occupant could cover day-to-day expenses like utility bills, lawncare, routine maintenance, association dues, etc. Depending on the financial health of your trust as compared to the financial resources of the others, the best option might be to designate a sum of money from the trust to cover expenses. If you earmark funds for this purpose, then be sure and include instructions for what happens to any leftover monies.

Distinguishable from Life Estate

A Right of Occupancy is not the same thing as a “Life Estate.” In North Carolina, you can grant someone a life estate interest in your property by Deed. The Deed gets recorded at the Register of Deeds office in the county where the land is situated. Once recorded, the Deed becomes a public record anyone can find by searching on the Register of Deeds website. Also, with a life estate, the “life tenant” (that is, the one granted the life estate in the property) has the right to live on the property for the rest of his or her life. In addition, the life tenant has the power to sell or transfer his or her interest in the property to another. The same does not hold true for a Right of Occupancy. The following chart summarizes the key differences between a Right of Occupancy and a Life Estate.

The Right of Occupancy is an underused planning technique that can not only help reduce friction between your loved ones but also give you peace of mind that your spouse, child, parent, sibling, friend will not be rendered homeless because of your untimely passing. It won’t fix everything, but it can solve stressful matters of the heart—and of the home!

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