Articles Posted in Asset Protection

DAVID BOWIE BONDS

        As the world learned, David Bowie passed away on January 10, 2016.  Mr. Bowie was always on the leading edge of creativity, an advocate for meaningful social change and a musical genius to boot.  He started his musical career at the same time as the Beatles, Rolling Stones and the Who and remained just as socially relevant, if not more so, compared to his contemporaries.  As well as being a singer and songwriter, Mr. Bowie was also an accomplished actor and painter.  More pertinent to the topic of estate planning, Mr. Bowie was a trailblazer in financial or investment products.  In 1997, Mr. Bowie issued Bowie bonds, the first of any celebrity bonds.  Since their initial offering, many credit agencies downgraded Bowie bonds status to just one level above junk bond status.  True to form, Mr. Bowie was a first, with many other talented artists following suit.

BACKGROUND TO MR. BOWIE’S FORTUNE

In the early 1970s Mr. Bowie entrusted his management to outsiders who profited from his talent and earnings, while paying him only a small salary compared to his earnings – $35,000 per year.  In the late 1970s he renegotiated this contract with an to a less onerous, but still exorbitant fifty percent of earnings price tag, reduced to 16% after a set period of time.  In 1982, while he was still under the thumb of these high fee contracts, he found a trusted accountant to invest his rather large intellectual property portfolio.  By 1997 he was estimated to be worth approximately $900 million, despite the high costs of his management contracts.  He listed his domicile in Switzerland to avoid the higher taxes of Britain and Manhattan, even though he allegedly lived in Manhattan year round.  

That is when he issued the first celebrity bonds or Bowie bonds as they were known and sought to free himself from high cost management contract that he was under.  Bowie bonds assured the holder a percentage of income from Mr. Bowie’s then intellectual property portfolio.  It is reported that he garnered an additional $30 million advance for a record (yes, they still sold records, even in those days) at about the same time.  While Mr. Bowie did not necessarily need the additional cash at the time, he simply chose to mortgage his intellectual property for cash up front.  It is estimated that he earned $55 million from his Bowie bonds sale and that he had to pay up to $80 million in return.  If these figures are correct, Mr. Bowie was indeed a shrewd investor, as the stock market was red hot in those days and Mr. Bowie’s trusted accountant bragged that he could double an investment in seven to ten years.  Bowie bonds matured in ten years time.  

CURRENT ESTATE ESTIMATES

        Mr. Bowie was known for being reclusive and extraordinarily private with his money and income.  Many people who followed Mr. Bowie through the years noted that $800 million dollars of his wealth cannot be accounted for.  It is hard to imagine that Mr. Bowie did not know where this money went or otherwise went unaccounted for.  It is a more likely scenario that Mr. Bowie and his trusted accountant found some secure financial haven for him to invest and secure his money.  The more people know his worth, the more people will prey on him or, more properly, his fortune.  Depending on where his estate is settled, the full story may not come to light.  If U.S. authorities have any part in settling the estate, it is likely that there will be heightened fees for keeping his monies overseas.  Since Mr. Bowie was a British citizen, who domiciled in Switzerland, it is not likely that this will occur.  

As such, it is hard to approximate Mr. Bowie’s true current worth at the time he passed.  Many experts believe that his very large and lucrative intellectual property portfolio will dwarf Michael Jackson’s $2 billion posthumous earnings. Perhaps Mr. Bowie’s estate will act consistent with his life time habit of being a trailblazer and show a novel or new way of trust or estate planning.  It is simply too soon to tell.  While most of us did not invest in Bowie bonds, he was a trailblazer for celebrity bonds in general.  For those of us who will never invest in celebrity bonds, he left us to feel like heroes, even for just one day.

LEGALLY DEAD BUT STILL ALIVE

New York like every other state in the nation has a law to deal with people who go missing and are presumed dead. Most states follow the common law time of seven years, although New York has a three year requirement for which it will wait to declare someone deceased. It is not unheard of for a Court to issue a death certificate only for the dead person to show up and show themselves to be very much alive. In Ohio the law prohibits a Court from vacating a death certificate three years following its issuance. Of course there was a case, very recently, in 2013 wherein a man was declared deceased in absentia, passed the three year statute of limitations to vacate or modify the death certificate and appeared in Court to request that the Court nullify the death certificate so he could get a driver’s license.

Another recent case out of Pennsylvania was in the news where a mother of two kids simply disappeared one day in 2002, declared legally dead in absentia and the resurfaced after 11 years, in 2013. Perhaps the strangest case was the case of Ben Holmes, who disappeared in 1980, declared deceased after eight years by his wife and then tried to reconnect with his wife in the 1990s. When he learned she was in a relationship with another man he confronted her and she shot him. He never tried to nullify the death in absentia although he did collect a personal injury settlement from his wife.

NEW YORK LAW AND HOW TO PROCEED FOLLOWING THREE YEARS

Most states also have a provision to allow for a disaster, such as the September 11 attacks, so as to allow for death certificates to be issued soon after the calamity rather than forcing families and others to wait the requisite three years. The death certificate is necessary for families to collect on life insurance proceeds, to proceed with any probate proceedings or initiate similar such legal proceedings and to allow for spouses to remarry. A death certificate usually only issues when a doctor can verify that a person is indeed actually deceased. When a body does not exist, the legal requirements to have someone declared dead is more rigorous. A person can be declared deceased at any point, it is simply that the law creates certain presumptions after a certain period of time. Tom Hanks was declared deceased in less than four years in Cast Away. Cases dealing with findings of death in absentia have been litigated since the beginning of courts, as the classic case is of a shipwrecked sailor who resurfaced years later.

WHAT HAPPENS IF THEY RESURFACE?

To nullify the legal finding of death is not the difficult procedure to accomplish. What is difficult is how to deal with the property of the estate that has transferred. It is common place for innocent, bona fide third party purchasers to purchase property of the estate and have good title. Some states, such as California, have laws to deal with a person who is legally dead but still actually alive. Pennsylvania requires that any such estate that is settled as a result of a finding of death by absentia, a “refunding bond” must be posted for any property that he/she receives from the estate. 20 Pa. C.S. § 5703. New York, like most, does not have any such law. In states such as California and Pennsylvania, it is relatively easy to unwind such estate distribution, in New York not so easy.  

FEDERAL COURTS ARE COURTS OF LIMITED JURISDICTION

There is little question that Federal Courts are courts of limited jurisdiction. If there is neither original jurisdiction, meaning a question of federal law or rights that arise as a result of federal legislation nor complete diversity of the parties, meaning that all of the defendants domicile in a different jurisdiction from the plaintiffs home state, then there is no jurisdiction for a federal Court to preside over a case. In all matters of diversity jurisdiction, the matter has to involve  at least $75,000 in property or damages. Certainly at least some probate cases fit into the requirements of diversity jurisdiction. Yet, there is generally a federal Court hands off approach to dealing with probate cases, known as the probate exception to federal jurisdiction.

A famous case from 1946 in the United States Supreme Court held that a federal Court can adjudicate various suits against a decedents estate, so long as they do not assume general jurisdiction over the probate proceeding itself or assume control over the property that is properly in the hands of the state probate Court. Markham v. Allen, 326 U.S. 490, 494 (1946). The meets and bounds of this holding have caused volumes of case law and law journal articles. It was not until 2006 with the celebrity, Anna Nicole Smith case that came before the United States Supreme Court that the Court expounded on the federal probate exception in any meaningful regards. Specifically the Supreme Court held that when one court is adjudicating a claim over a specific piece of property (or in the case of an estate, a bundle of property rights) a second court will not assume jurisdiction over the same property.

Therefore, the probate exception reserves to state probate Courts the distribution of property in line with a decedent’s will. A federal Court cannot then take over the distribution of the same property when a state Court already asserted jurisdiction over it. A federal Court may entertain suits dealing with matters peripheral to the distribution of property of the estate. Marshall v. Marshall, 547 U.S. 293 (2006).

EXCEPTION TO THE PROBATE EXCEPTION

One of the exceptions to the federal probate exception with federal exercise of jurisdiction over matters involving the transfer of property rights over a decedents estate is in the context of trust litigation and generally breach of fiduciary claims against a trustee. The Fifth Circuit Court of Appeals ruled on a case interpreting the Marshall decision and fashioned a two part test to help better clarify if a federal trial court can or should assert jurisdiction, assuming that there is at least federal diversity jurisdiction over the case.

  • First, the Court must ask if the property in dispute is property of an estate for which a state probate Court has jurisdiction over; and
  • Second, if the case would require the federal Court to assert jurisdiction over the property itself (as opposed to jurisdiction over a person).

If the answer to both is yes, the federal Court cannot assert jurisdiction over the case. Curtis v. Brunsting, 704 F.3d 406 (5th Cir. 2013). While it remains to be seen if this holding will take hold across other sister circuits, it is a good approach to the practical questions that are dealt with in federal Courts across the nation.

As the new year opens it is a good time to review all of your legal estate planning decisions and tweak any previous documents that you think need to be modified. This requires us to get back to the basics of estate planning . For those scenarios that deal with what happens to you in an emergency situation, you have an advanced medical directive, with some level of specificity but not too much. The term advanced medical directive is an umbrella term that encompasses several types of legally significant documents. One of them is a living will. Your living will tells the medical professionals who are treating you, what your wishes are in advance for any number of medical situations.

 

HEALTH CARE PROXY

 

Underneath the umbrella term of advanced medical directive, there is also the health care proxy. The health care proxy allows for you to appoint a trusted person to act as a decision maker for those scenarios that are not contemplated in your living will and if you are unable to make any medical decisions by yourself. Medical conditions change, different doctors have varying opinions as to the best course of treatment or even over the correct diagnosis. Having a health care proxy will have someone stand in for you to make the best decision under the circumstances. You can limit the authority that you give to the person or only permit the health care proxy go into effect after certain conditions or triggers occur.

 

DO NOT RESUSCITATE

 

Underneath the umbrella term of advanced medical directive is another document of legal significance, the do not resuscitate order. For some a do not resuscitate order may be fitting for religious or other reasons. There is nothing legally inappropriate for a person to include their do not resuscitate order in their living will or in a separate document. Whether it is separate, from the living will or both is of no legal consequence.

 

GENERAL POWER OF ATTORNEY

 

The general power of attorney may or may not be a good fit for you depending on any number of factors. It does act as a safety net for any and all situations, such as to empower your health care proxy agent to negotiate with the health insurance company in the event they denied some service, such as medical transport or a physical rehabilitation. It may allow for the person to redirect certain public benefits into different accounts, depending on your needs. It may also allow for someone to care of the young children on an emergency basis if you are incapacitated and they have medical or other needs themselves that need to be taken care of. The general power of attorney helps to fill all cracks in the documents that you created, to allow for truly wrap around services for you in any emergency situation.

 

It is good practice to forward and review all of your documents that encompass your advanced medical directive (living will, health care proxy and if any do not resuscitate) with your primary care physician. Of course all doctors are busy professionals so make sure that you inform your doctor’s office receptionist that you are making an appointment to review your advance medical directive. It is always best to listen to the advice of any professional that you engage with, obviously including your primary care physician. That does not mean that you have to do everything that they suggest as it may not be fitting for you personally. But it should always be food for thought. Hospitals often ask about a do not resuscitate order when a person is admitted as well any advanced medical directives. The same holds true for your attorney. It is best to review all of your documents with your attorney and make any recommended changes that you are comfortable with.

It happens often enough that a parent for many reasons decides to disinherit one, several or all of his/her children.  At the same time, this is often not a controversial decision and is just as common both understandable and predicable.  Perhaps a person promised their estate to a specific child, stepchild or niece or nephew for taking care of them instead of being required to be sent to a long term continuing care facility.  Perhaps the parent provided financial largesse to his/her via college education, graduate school and even helped them purchase a house but had one child who had special needs who always lived at home and insured that child’s future by funding a trust during his/her lifetime and then disinherited all of his/her other children by putting the whole of the estate into the trust.  

 

Mickey Rooney was a very well known and well paid actor that had a long career, with many children and many marriages and disinherited his children.  He instead left his estate to his stepson and explained that his kids were better off than he was.  By the time Mr. Rooney passed, his estate dwindled to just about $18,000, so there was little incentive for any of his kids to contest the will, although the same did not hold true for Mr. Rooney’s then current spouse.  Unfortunately for some families, this can be a shock and there are sufficient incentives for the family to contest the will.  

 

INVALIDATING THE WILL

 

Louisiana is the only state that allows for a disinherited child to elect to take a statutory share against the stated wishes of a parent’s will.  If the parent did not dispose of everything in the will, due to perhaps an heir predeceasing him/her, the children may inherit that property via intestacy statutes.  If a parent, however, leaves all of his/her property to someone else via his/her will, the only thing the child/children can do is to invalidate the will.  In New York, if a person dies intestate – meaning without a will – the spouse inherits the first $50,000 and half of the remainder.  The children then split the other half between themselves.  The child/children must also consider if there was a previous will, and, if so, what treatment is afforded to them in that will.  But the matter gets more complicated from there.  Property held in joint tenancy (with a business partner for example), by the entireties (held as a marital asset with the spouse) takes those assets out of the estate.  

 

GROUNDS TO CONTEST WILL

 

There are many many factual scenarios that enable a party to contest a will.  The first consideration is who may contest the will, or, more properly stated, who has standing to contest the will?  In New York, only people who have a material interest that may be prejudiced if the will as written is fully probated.  Perhaps the heir stands to inherit more if the intestacy law controlled or perhaps the heir stood to gain more under an older will.  There are several grounds to contest the validity of a specific will:

 

  • Undue influence, coercion or duress;
  • Revocation;
  • Incapacity or lack of capacity;
  • Fraud;
  • Forgery; and
  • Improper execution.

WRONGFUL INTERFERENCE WITH WILL

It is known by many different names, depending on the state and the era. Most recently it made its appearance in news headlines with the name – intentional interference with expected inheritance, sometimes even shortened it IIEI. The United States Supreme Court referred to it as “a widely recognized” cause of action and as the “tort of interference with a gift or inheritance” in the Anna Nicole Smith case. Marshall v. Marshall, 547 U.S. 293, 296 (2006). The matter has surfaced in the news over at least the last century, most famously (perhaps infamously) in the Father Divine case in New York, in 1949. Latham v. Father Divine, 299 N.Y. 22 (1949).

 

The American Law Institute published the The Restatement of Torts (Second) of Torts in 1979.  That was the first time that the tort, known by many names, was formally recognized as such. Prior to this, the principal and concept was recognized but only in the most egregious of circumstances. There are several seminal cases that speak to the larger concept, one of which was the New York case dealing with Father Divine case noted above.

 

The vast majority of Trial Court cases barely survived dismissal for failure to state a claim, as the right to such a cause of action was in question, despite the seminal cases. The law is a living thing that evolves and even comes around waves. As one of the twentieth century cases that broke the mold of nineteenth century reasoning noted that under Roman Law, interference with inheritance was a criminal act.

 

CURRENT NEW YORK LAW

 

New York Law does not recognize this cause of action per se. The New York Appellate Division of the Supreme Court summed it up perfectly when they held that no such cause of action exists in the state for tortious interference with an inheritance. It will, however, create a constructive trust for the intended heir under certain equitable circumstances. Schneider v. David, 602 N.Y. 2D 130 (1993). Is this the same thing? For example, Iowa permits such a cause of action, which is litigated in its Trial Courts, not its Probate Court, allowed for attorney’s fees and punitive damages for intentional and malicious conduct. Huffey v. Lea 491 N.W. 2D 518 (Iowa 1992).

 

The difference between whether a case is litigated in front of a probate judge versus a trial court matters, insofar as you are entitled to a jury in a trial court. In addition, attorney’s fees and punitive damages also matter, but, probate court judges could award attorneys fees if the case warrants it. But the measure of economic damages, which is indeed the merits of a case, is still the same. To further elaborate on New York law, the 1988 case of Dawson v. Vasques quoted the 1919 case of Beatty v. Guggenheim Exploration Co. which stated that equity requires that a constructive trust be created, but it is nothing more than the means by which fairness acts and that it will not “restrict itself” to any specific form of harm for which it will provide justice. Instead, equity will fix whatever chicanery that people can implement.

 

For more information all all issues related to inheritances, wills, and trusts, be sure to reach out to a NY estate planning attorney today.

ANCILLARY PROBATE

 

It is not an uncommon scenario for a middle class family of even modest means to own a vacation home in another state. For those of us who love to ski, hike and explore, mother nature’s wonders on horseback, Vermont and Wyoming may be your choice. For those of us who can never tire of beaches, the ocean and sun, California, Florida or maybe even the Carolinas are for you. Even more of us own timeshares and similar properties throughout the country.

 

Most of us never stop to think about what it takes to insure that these properties pass via a will without complication. Whenever a person lives, or, to couch it in lawyer lingo “domicile” in a state (and own the vast majority of their property in that state) their estate should go through probate in that location. The vacation property in the other state, however, will likely not pass as desired and outlined in the decedent’s will without opening an independent probate proceeding in that state. This secondary proceeding to insure the proper passing of the property in that state is commonly called “ancillary probate“.

 

HOW TO AVOID THE TIME, EXPENSE AND HEADACHE FOR THE EXECUTOR

 

There are many ways to avoid all of the potential problems that may come with the transfer of your property to your heirs. Real estate transfer taxes change, attorneys fees are rarely something that can be planned for in advance, valuations fluctuate from year to year and may be wildly erratic depending on the nature of the property and the location of the property. None of these expenses and precious few others are fixed costs. It is, therefore, difficult to predict the final cost to your heirs. In the meantime, it may not be possible for the heirs to use the timeshare or the vacation property and yet taxes and maintenance fees are still incurred.

 

As such if you own simple property such as time shares or a simple beach condo, some may advise you to add an adult heir as joint tenant with the right of survivorship to the property title. Certainly there are expenses related to such a transfer, but the costs are greatly reduced, can be accomplished at a time of your own choosing and with a known cost structure. However, one of the downsides to this is to open that property up to potential claims by the new joint tenant’s judgment creditors.

 

Another method to insure transfer of title to the property with reduced costs and complication is to place the property in a revocable trust, with you as the trustee. You have complete dominion and control over the property during your lifetime in the event you decide you want to sell it, rent it or let a friend or family member live there. You can insure that the property will pass to heirs who are minors at the time of your passing in the event you want to pass it on to grandchildren, young children or nieces or nephews. As with adding a joint tenant, the cost to transfer title from you to the trust is drastically discounted compared to probate, with the added cost of ancillary probate proceedings, again, you can control the timing for the transfer of the property to when it is most opportune to do so and the costs for these endeavors come with a known cost structure.  

The United States Tax Court recently decided a case where the issue was the role that a tax return due to the decedent played in overall estate tax liability. The Estate of Russell Badgett, Jr. et al v. Commissioner, T.C. Memo 2015-226 (Nov. 24, 2015) dealt with a very large overpayment of taxes by the decedent during his last full calendar year of his life. The estate failed to include the value for the tax returns that Mr. Badgett, Jr. (or his estate as it were) received, which ultimately undervalued the estate a rather significant amount.

 

The Internal Revenue Service indeed caught this accounting error and sent out a notice of deficiency approximately a year and a half after the filing of the last tax return. The Tax Court ruled in favor of the Internal Revenue Service because estate tax returns must list all the property that an estate owns. The Tax Court cited an United States Supreme Court case that held that state law defines what property rights, while federal law defines what property is taxed. Morgan v. Commissioner, 309 U.S. 78, 80 (1940).

 

THE CASE OF MR. BADGETT, JR.

 

Mr. Badgett, Jr. was a very successful Kentucky mine owner and mining engineer, where he was one of the pioneers in strip mining. He also previously owned his own bank. When he passed away in March, 2012 he still did not file his tax return for 2011. When it was filed it was discovered that he paid $429,315 too much. The same return requested that $25,000 of the overpayment be credited towards his tax liability for 2012. In December, 2012 the estate filed an estate tax return which did not include the value of the 2011 or 2012 tax returns. The estate for Mr. Badgett, Jr. then filed a personal tax return in April, 2013.

 

The personal tax return of April, 2013 noted that Mr. Badgett, Jr. incurred $10,874 in tax liability. With the $25,000 pre-payment from the 2011 tax return, Mr. Badgett was due $14,126 as a tax return. It was the collective amounts of these two tax returns that were not included in the value of the estate. Consequently, the Internal Revenue Service sent a notice of deficiency to Mr. Badgett, Jr.’s estate for $146,454 for not including these amounts as part of the value of the estate.

 

THE STATE LAW

 

The Russell estate did not pay the deficiency and disagreed with the Internal Revenue Service that the tax return amounts were taxable. More specifically, Kentucky law requires that the property be in existence at the time that tax liability was imposed. A mere expectancy is insufficient to create tax liability. Since Mr. Badgett passed prior receiving the tax return money, no tax liability attached. The Tax Court disagreed. While Mr. Badgett, Jr. did not have the tax return money in his account at the time of passing, his estate had the right to compel the Internal Revenue Service to pay him the monies due and owing from previous years. As such, the estate had those monies, or more accurately, had the right to those monies. The legal right to something is more than a mere expectancy. The Tax Court cited specific Tax Court caselaw that holds that previous tax return monies must be specifically included as property of the estate in tax returns.

 

As this case demonstrates, it is critical to have the aid of an experienced estate planning attorney who understands the tax implications of your actions and the unique state law issues that may affect your situation.

 

STRICT ADHERENCE TO FORM

On March 3, 2015 the Eighth Circuit Court of Appeals, sitting in Denver, Colorado, rendered an opinion in the case of Draper v. Colvin, where it explicitly admitted that it drew “a hard line” when it upheld the decision of the Social Security Administration that denied Stephany Draper eligibility for supplemental security income. Draper v. Colvin, 229 F.3d 556 (8TH Cir. 2015). Ms. Draper was an 18 year old woman who suffered traumatic brain injuries in an automobile accident and applied for supplemental security income benefits. In addition, she filed a personal injury case where she netted approximately $429,000 from the settlement. This amount of money would render Ms. Draper ineligible for both supplemental security income as well as Medicaid, both of which are means based programs.

SPECIAL NEEDS TRUSTS NOT COUNTED AS ASSET IN MEANS TEST

Congress resolved these issues when it created loopholes to allow for special needs trusts that provide for beneficiaries, yet considers them as non-countable assets when applying for supplemental security income and Medicaid. The loophole found at 42 U.S.C. 1396(d)(4)(A) requires that the special needs trust must be set up by a third party and not the beneficiary herself. The parents of Ms. Draper created a special needs trust that they believed would render her eligible for both supplemental security income and Medicaid, as the money from the personal injury case would not be enough to provide aid to Ms. Draper for life. The Social Security Administration disagreed, as the parents created the trust in their capacity as agents for Ms. Draper, acting under the power of attorney. When Ms. Draper’s parents tried to correct the deficiencies, likely in an effort to appease the Social Security Administration and make the issue a non-issue, the Social Security Administration was still not satisfied. Most specifically, the parents sought a Court Order from the same trial Court that had jurisdiction over the personal injury case, approving the trust and retroactively dating it back to the date of the original trust. These amendments still did not comport with the statutory mandate, as the seed money for the trust was still Ms. Draper’s settlement proceeds.

HOW TO AVOID MISTAKES

Throughout the life of the Draper case, the Social Security Administration’s Program Operations Manual System (POMS) was continually referenced, as it helped to guide and justify the Social Security Administration in much of its decisions. The Draper case is a warning to all that the Social Security Administration will require strict adherence with all of the statutory mandate, as well as the POMS. For a trust to be considered a non-countable asset, the following must occur, and in this order

  1. The trust must be created by someone other than the disabled person. If a parent creates the trust they can seed the trust account with a nominal amount, signing off on all relevant documents as the “grantor”. If for some reason a parent, grandparent or other relative cannot create the trust, the disabled party can petition a Court to establish a trust. The Court Order should indicate that the Court is the grantor establishing the trust. This was a material fact in Draper, as the Eighth Circuit deemed that the Trial Court did not establish Ms. Draper’s trust.
  2. After the trust is established by a third party, any personal injury proceeds may fund the trust. The person that deposits money into the special needs trust account or transfers title and ownership to property may act in their capacity from a power of attorney for the beneficiary.

VALUABLE ASSET

        A residential lease in New York City or any desirable locale can provide many benefits.  Some people wait years to get into a rent stabilized apartment.  There is even a Seinfeld episode where Elaine quips that some people scan the obituaries to see if someone in a rent stabilized apartment has passed away.  It is a common occurrence for many people to live decades and raise generations of families in their rent controlled rental unit.  Many cities have their own laws dealing with how to inherit these leases.  New York Real Property Actions and Proceedings §236 law deals permits an estate to inherit the lease of a deceased person and New York Estate Powers and Trusts Laws §13-1.1(a)(1) also holds that a lease is an asset of an estate.  In addition, many local laws housing and regulations also mandate how and when a lease may be inherited.  New York City ended its Rent Control laws in 1971, yet still has approximately 38,000 rental units listed under the old Rent Control laws, as once the lease is under the Rent Control law it remains until it is no longer.  Going forward New York leases are generally covered by Rent Stabilization laws, also covered by the same laws dealing with succession of a residential lease.  Rental units under the rent stabilization laws are the most common type of residential lease.  These leases will remain for so time due to the right to succeed these leases by other family members or even friends.  Most particularly, New York Code, Rules and Regulations §2532.5(b) allows for family members to succeed the lease.  Landlords have been known to fight like the devil to regain possession of these rentals, sometimes offering cold hard cash, from $40,000 on the low end to $17,000,000 on the high end.

HOW TO INHERIT OR SUCCEED – COHABITATION

To succeed the lease the new renter must show that he/she lived with or cohabitated with the deceased tenant for at least two years, or, in the case of a senior citizen or if they are disabled, they only need to show that they cohabitated with the deceased tenant for a year.  The term cohabit is critical, as the new tenant must show that he/she actually lived with the deceased tenant.  If the deceased tenant lived elsewhere, there is no cohabitation.  Personal possessions, cancelled rent checks from the deceased tenant’s checking account, failure to change address for the deceased tenant’s driver’s license and maintaining a bedroom are all evidence in the event that the landlord decides to challenge the new tenant for possession of the rental unit.

FAMILY RELATIONSHIP OR INTERDEPENDENCE

        In addition to the cohabitation requirement, New York Code, Rules and Regulations §2520.6(o) requires for the succeeding party of a rent controlled or rent stabilized rental unit have a family relationship or anyone that can show an emotional and financial commitment and interdependence with the deceased tenant.  The regulation itself indicates that no one factor is determinative and lists eight different factors that a Court can take into account to determine if indeed there was an emotional and financial commitment.

Contact Information