Can I Sell The House Out Of The Estate?

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. 

Life Estate Update

A recent Appeals Court case reminds lawyers that even the simplest estate planning techniques require a thorough understanding. In Linda Dell’Olio, et al. v. Assistant Secretary of the Office of Medicaid, et al., the Court explained a feature of life estates – a common planning tool – that may surprise you.

A life estate is a form of ownership measured in duration by the length of a person’s lifetime. A life estate splits ownership in time between the “life tenant,” who owns the property for life, and the “remainderman,” who assumes ownership upon the death of the life tenant. A life estate is commonly created by a deed stating:

“I, L.T., hereby convey this real estate to R.M., reserving to myself a life estate for the duration of my lifetime, during which time I shall have the right to use and occupy the real estate.”

In this example, L.T. owned the property outright prior to the transfer. Following the transfer, L.T., the life tenant, has the right to possess the property for life. Following L.T.’s death, R.M. automatically becomes the sole owner. R.M. has no right to possess the property while L.T. lives.

Life estates are a popular planning tool because they are easy and affordable to create, avoid probate, and confer considerable tax benefits upon the remainderman, among other benefits. Yet it is important to understand exactly how they work to avoid unintended consequences.

The facts of the Dell’Olio case are too complicated to repeat here but can be simplified as follows. Greg created a Will gifting certain real estate “to Lucy for life, then to her daughters Rachel and Rebecca.” Upon Greg’s death in 1956, Lucy became the life tenant with Rachel and Rebecca holding the remainder interest.

During her life, Rachel became indebted to MassHealth for roughly $1.2M. She died in 2008, survived by her mother, Lucy, and her sister, Rebecca. When Lucy died in 2013, Rebecca assumed that, as the surviving remainderman, the property was hers alone, since Rachel had not survived their mother to take her half of the property.  

MassHealth, and the Appeals Court, disagreed. Instead, the Appeals Court explained that Rachel’s interest in the property vested upon Greg’s death in 1956, regardless of whether she ever had the right to possess the property during her own life. The Court reasoned that there are two distinct moments that are not to be confused: the moment the property vests “in interest” and the moment it vests “in possession.” Thus, Rachel’s future right to possession was an asset she had owned since 1956. Upon Rachel’s 2008 death, this future right became part of her estate. Upon Lucy’s 2013 death, Rachel’s estate obtained the right to possession, i.e. an outright ownership interest of 50% of property, which MassHealth could use to satisfy its $1.2M claim.

As a result, Rebecca is left with only 50% of the property instead of the 100% that she believed she was entitled to.

The Massachusetts Pet Trust

A pet trust is an arrangement allowing a pet owner to provide financially for the care of an animal in the event of the owner’s death or disability. In a nation that spends over $70 billion annually on pets, these trusts allow owners to plan for the financial reality of passing a pet to a friend or family member who may not otherwise have the resources to provide for its care. The associated costs– particularly where the caretakers are busy professionals – can be significant when one considers the costs of dog-walkers, veterinarians, pet insurance, boarding expenses, and so forth in addition to traditional maintenance expenses. A financial plan for a pet is essential.

The Massachusetts pet trust statute allows an owner to create a special purpose trust for one or more pets to last for the duration of the pets’ lives. The owner designates a person or organization as the Trustee, who this is often the same person entrusted with the physical custody of the pet, but need not be. The Trustee is provided with a certain amount of money and instructions for the benefit and care of the pet. The Trustee must comply with these instructions and cannot use trust funds for any reason not authorized by the pet trust. The law allows the owner to build in safeguards by appointing other individuals to monitor the Trustee’s activities and to enforce the terms of the trust on behalf of the pet if necessary. 

However, unlike a typical trust, a pet trust may be second-guessed by the Court. Specifically, a Court can reduce the amount of money in the trust if the Court decides the amount “exceeds the amount required for the intended use” and finds there will be no “adverse impact in the care, maintenance, health or appearance of” the pet. In other words, don’t get carried away. One need only to recall the public furor surrounding Leona Helmsley’s $12 million trust for her Maltese, Trouble, to understand the purpose behind the limitation.

Are you thinking about planning for your four-legged companion or revising your estate plan to include a pet trust? We are always available to answer your questions.