As a Trustee of a decedent’s trust or as a personal representative or executor of a decedent’s probate estate, you may be required to sell the decedent’s real estate. In doing so, you will be confronted with legal issues and requirements as well as practical issues. I will address both in this article.
If the decedent or his trust owned real estate at the time of his death, then you, as personal representative or trustee, first have an obligation to secure and preserve the property. If someone is residing at the property, you need to determine whether that person has the right to be there. If not, you have an obligation to act in the best interests of the beneficiaries. This may mean filing a suit for eviction or using some other legal means to gain possession of the property. You are also responsible to make sure that the property is properly insured. The insurance company or agent should be notified of the decedent’s death because the vacancy of the property may affect the terms of the coverage. Once these issues are resolved you can then concentrate on the disposition of the property. The procedure for disposing of real estate will differ based on whether the property is held in trust or as part of a probate estate, but many of the fundamentals will be the same for both.
Disposition of the Property.
How you are to handle this disposition of real estate is determined by the terms and provisions of the Will or Trust you are administering. There are a variety of these types of provisions contained in Wills and Trusts. The following are some of the more common examples:
1. Sell the property and distribute the proceeds.
Occasionally the decedent will direct that the trustee/personal representative/executor (“administrator”) sell the real property and distribute the proceeds among certain beneficiaries. In this situation the administrator would have authority and be responsible for the sale of the property. This would include the preparing of the property for sale, marketing the property (with or without a real estate broker), negotiating the contract and closing the transaction.
After the sale is completed, the administrator will distribute the net proceeds to the beneficiaries (after deducting the cost of marketing and sales, including the closing costs, taxes and other expenses) according to the terms of the Will or Trust.
2. Transfer the property directly to a beneficiary or beneficiaries.
The first step is determining how the property is titled. I have represented trustees who believe that a parcel of real estate was titled in the name of the trust he was administering. When we searched the title, we discovered that the decedent never transferred ownership of the property from his own individual name to that of the trust. As a result the property was a part of the decedent’s probate estate.
Selling a Decedent’s Property.
The sale of probate property or other property of a decedent has its own unique issues. In many cases the success of a sale depends on the closing occurring in a timely fashion. It is important that the personal representative have the authority to sell the property as early as possible. If the will contains a power of sale, the personal representative is authorized to sell the property upon being appointed by the court. If a decedent dies intestate or executes a will with no power of sale, a personal representative may sell real property only with the authorization or confirmation by the court. No marketable title passes until the sale is authorized or confirmed by the court. In any case, the proceeds of the sale cannot be distributed to the beneficiaries until after all of the decedent’s debts have been paid.
The most important document in any real estate transaction is the contract for sale and purchase. It is the blueprint of the transaction. All of the items you negotiated with the buyer should be included in the contract. Because of this, it is extremely important that the contract be drafted to clearly express the full intent of the buyer and seller. If a point you negotiated is left out of the contract, it is likely you will not be able to enforce that point.
Real estate transactions in most states are subject to the Statute of Frauds which means that all agreements for the sale of real estate must be in writing. The writing does not have to be a formal contract. There are many cases where letters, notes, memoranda and other writings have formed an enforceable contract. However, to have a clear understanding of your intent and the intent of the seller, it is best to state the agreement in a single properly prepared contract.