DAUGHTER HAS TO PAY RENT

By James W. Mallonee

Suppose Mom dies and leaves her main house to her two children, whereupon one of the children moves into the house, but does not pay rent to the estate; is this legal? It’s only legal if everyone agrees to the non-payment of rent.

This situation arose in the case of Kersey v Abraham. The facts are that Mom had placed the property in a trust and at her death, the trust would hold the property by and through the successor Trustee. The Trust did not distribute the real property evenly, with 2/3 to Becky (the daughter) and 1/3 to her brother Abraham. The Trustee selected by Mom was Becky. Upon the death of Mom, the subject property was to be split and divided as stated. Sadly, this did not happen and Becky moved into the home taking full control of the property and never paid rent or divided the property…after all it was the home that Becky grew-up in.

Naturally, the brother (Abraham) was not amused by this and sued Becky for breach of her fiduciary duty by engaging in self-dealing, squatting on trust property and Becky’s failure to distribute trust property. What could Becky have done differently? The first thing is to pay a fair market rate of rent to the trust or (assuming Abraham is acceptable to this arrangement) pay Abraham 33% of the fair value of marketable rent or purchase the property outright.

Does Abraham have to accept a monthly rental payment? The answer is no, he could force the sale of the property and be done with Becky. Assuming Abraham agrees, Becky could determine what the fair market value of the property is and pay off Abraham (buying his interest) to rid herself of his ownership. However, this requires Abraham to agree to the presumed fair market value or whatever he would accept.

To prevent the above from happening; when Mom was preparing her Will, she could have stated that the house was to go directly to Becky and provide compensation to Abraham for his share of the house, thus equalizing the distribution. That did not happen and because of that failure, litigation occurred which ultimately will leave a bad taste in the mouth of both siblings.

Eventually, the court ruled that Becky (who was living on the subject property) owed the Trust the amount of rent that should have been paid. The mother’s trust read that Becky was to receive two thirds of the estate and one third to Abraham. Thus, for every $100.00 due the estate and paid by Becky as rent, Becky would actually be paying $66.00 due to her ownership interest.

So what is the message to be learned here? When preparing a Will or Trust instrument be aware of the desired outcome that you wish to have happen. You do not have to distribute your assets evenly, but if you do not, make certain you have a logical explanation for the distribution you select. If you elect to not provide any assets to one of the children, be sure to name the person outright and that you are not leaving anything to that individual. There is no need to explain why.

James W. Mallonee (Jim Mallonee) is a graduate with a B.A. degree from the University of South Florida and a Master of Science degree from Rollins College in Winter Park, Florida. He obtained his Juris Doctorate from the University of the Pacific, McGeorge School of Law in Sacramento, California. Prior to returning to Florida to practice law, Mr. Mallonee was employed by Intel Corporation for 22 years in such locations as New Jersey, Florida and California.

In addition to being a member of the Florida Bar since 2003, Mr. Mallonee serves on the Charlotte Community Foundation Committee for asset allocation and teaches Business Law at State College of Florida. Mr. Mallonee is also on the Board of Directors for the Military Heritage Museum located in Charlotte County, Florida.

His firm practices law in the following areas: Probate, Wills & Trusts, Guardianships, and Litigation in the areas of Real Estate, Guardianships and Estates. The firm has two locations in Venice and Port Charlotte, Florida.

This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship.

James W. Mallonee, P.A.
946 Tamiami Trail, #206, Port Charlotte, FL 33953
(941) 206-2223

871 Venetia Bay Blvd., #225, Venice, FL 34285
(941) 207-2223