Distributing Proceeds of Real Estate Sold by a Personal Representative
Clients often face the following scenario: A Will gifts a certain parcel of real estate to one or more individuals, called “specific devisee(s).” Unfortunately, the Personal Representative must sell that property to pay the estate’s debts and costs. Are the specific devisees entitled to the balance of the sale proceeds, or do those proceeds get distributed as the decedent’s personal property? Cash is, after all, personal property.
Pursuant to M.G.L. c. 204, § 9, the surplus of proceeds of real estate sold by a Personal Representative are considered real estate and disposed of to the same persons whom the real estate, if not sold, would have descended. In other words, the specific devisees take whatever sale proceeds remain. In legal terms, this is referred to as the “non-ademption of specifically devised real property.”
This rule can be dispositive as to whether certain heirs stand to inherit. For example, in a recent estate, the Testator’s Will provided as follows (with certain information changed):
I give and bequeath the real property at 742 Evergreen Terrace, Springfield, to my daughter, Lila, if she shall survive me.
I give and bequeath the remainder of my entire estate, whether real, personal or mixed, 20 % to my daughter Lila, if she shall survive me, and 80 % to my son, Brad, if he shall survive me.
Both Lila and Brad survived Testator. Unfortunately, the Personal Representative of Testator's estate had to sell 742 Evergreen Terrace to pay a number of large healthcare related claims against the estate. The balance of the sale proceeds, after payment of debts, was $200,000. If the proceeds were distributed as personal property (remember the general rule: cash is personal property), Lila would receive $40,000 and Brad would receive $160,000. However, M.G.L. c. 204, § 9, provides that, because Lila was supposed to receive the real estate, she receives the entire $200,000.
Sales of real property by Personal Representatives can be complicated, particularly where personal property is insufficient to pay claims against the estate, and/or where specific devisee(s) object to the sale. If you have questions regarding the sale or management of an estate's real or personal property, please give us a call today.