While many people feel an emotional attachment to a childhood home or family vacation property, most heirs prefer to sell following the death of a parent, grandparent, etc. Consequently, we are frequently asked by our estate clients if and when the real estate can be sold. In general, it is almost always possible for the Personal Representative (formerly known as the Executor) to sell real estate. However, the time and cost will depend on various factors, not least of which is whether the deceased property owner had an adequate estate plan.
Home Owners Who Prepare Estate Plans
A good estate plan will make managing and selling real estate much easier for the Personal Representative (the “P.R.”). A well-drafted Will should expressly give the P.R. the “power of sale,” meaning that the P.R. may sell real estate without permission of the court or the heirs so long as the terms of the sale are in the best interests of the estate (i.e., no sweet-heart deals to friends and insiders). However, if the “power of sale” is not included in the Will, then the P.R. will need to seek court approval, which means higher costs and possible delays.
Alternatively, where the owner had placed the property into a Trust, the Trustee will have the authority to sell without permission of the court or beneficiaries so long as the sale is in the best interest of the beneficiaries.
In both cases, the P.R. or Trustee will simply engage real estate professionals to list and sell the property as any other owner would. The lawyers involved in the transaction will provide the additional legal documentation necessary to pass title to the new buyers at minimal cost.
Home Owners Without Estate Plans or With Defective Estate Plans
Most Americans die without Wills or Trusts. Many have Wills or Trusts that are poorly drafted and do not include a “power of sale.” P.R.s of these estates have additional hurdles to jump over and may be exposed to risk of personal liability for missteps.
Court permission to sell is commonly referred to as a “License to Sell.” While most requests for a License to Sell are routinely granted, each of the heirs and anyone interested in the estate has the right to object and try to block the sale. Moreover, the Court will review the value of the property and may determine that the proposed sale price is not in the best interests of the estate. It is easy to see how this process can inject uncertainty into a sale, particularly where there are numerous heirs, some of whom may not get along or be cooperative.
The process may involve publishing notice in the newspaper, a waiting period of over a month, and – of course – substantial legal fees and court costs. The purchase and sale agreement must also be carefully drafted to ensure that the P.R. does not incur personal liability for binding the estate to a bad agreement. If he or she does – for instance, if a better and higher offer comes along after the agreement is signed – the P.R. might be personally liable to the heirs for the difference.
Moreover, the P.R. must determine whether the sale is necessary for administering the estate (e.g. where cash is needed to pay costs, taxes, and debts), or whether the sale is simply being done through the estate as a matter of convenience for the heirs (e.g., where the heirs simply want the P.R. to handle the sale to save them the trouble). The process for obtaining each License to Sell is technically different in each circumstance. Moreover, the costs of the former are deductible for tax purposes while the costs of the latter are not.
Home Owners Whose Estates Are Not Timely or Properly Probated
Clearing title to real estate following the death of the owner is a complicated area of the law involving too many considerations to set forth here. Suffice it to say, though, that we encounter many real estate title issues that are created by families who did not want to incur the time and expense of probate, or created by attorneys who mishandled the probate process. Waiting to probate a property owner’s estate will make the process more complicated and expensive in the long run, and could lead to enormous tax bills. Moreover, if the estate is handled by a lawyer inexperienced with the myriad rules and regulations for clearing title, then the work may have to be undone and/or redone in the future.
If you have any questions about real estate that you have or may one day inherit, please give us a call to learn about what you and/or the home owner can do to create an efficient and appropriate plan.
