There is almost nothing in real estate that is straightforward. Even the most basic transactions have a snag with the title or something in the closing process that throws you a curveball. This is only heightened if the previous owner passes away. Conveying ownership in this scenario can tack on several months to the process and engulf your business if you let it. On the flip side many prospective buyers know this and are not willing to follow through thus leaving the buyer pool reduced. Understanding how real estate is conveyed upon death can give you a definite leg up on your competition, or help protect a personal asset you are holding. Here are some scenarios to help determine how a piece of real estate is conveyed upon death.
- Wills/Probate: The most common, and straightforward, property transfer comes when there is a will. Upon passing the will is enforced and executor determines the descendants last wishes. If they listed an heir, usually a spouse or family member, they retain ownership. The problem comes when there is no will in place or the heir has passed away. This is where probate enters the picture. There are many layer to probate but let’s assume that there is nobody listed on the will. In that case the court will appoint an administrator, or executor, to administer the process of collecting assets, paying liabilities and ultimately distributing assets to any beneficiaries. Where probate becomes appealing for investors is that there are many situations where the court appoints a beneficiary who does not have the time, interest or financial resources to own the property. As great as being gifted a piece of real estate may appear, there are costs associated and not every owners is ready for that. In this scenario they are tempted to take the first, best offer that is presented and walk away. With a little work, and money, the house can be profitable but the beneficiary does not have the time or means and just wants to sell and move on.
- Trusts: A trust is a popular planning alternative for those looking to avoid probate. How they work is the descendant gives the property to a trustee upon death. The trust has a fiduciary arrangement to hold the assets without having to deal with the drawn out process of probate. There are numerous ways for the property to go into trust as well as numerous types of trusts. If the property is held in an irrevocable trust, it may not be considered part of the taxable estate, so it will reduce the owner’s tax obligation. Selling a property in a trust is a bit tricky, but certainly not as difficult as it may appear. The person that inherits the property must work with the trustee to sell. The trustee is the one who actually conducts the sale. Upon the sale the trustee will transfer the title to the seller, who can then transfer it to the new owner. As obvious as it may sound, whatever side of the transaction you are on it is essential to have a good real estate attorney on your side who can decipher the necessary paperwork and steps required.
- Joint Ownership With Right Of Survivorship: The passing of a property owner doesn’t necessarily have to trigger a sale. There are many cases of a husband and wife owning equal shares of the property. They go on the mortgage application and title as joint owners. When one passes away, the surviving owner immediately inherits their percentage of ownership. They now own the property solely and are free to do with it what they please. It is important to note that the will and any trusts may need to be modified, or updated, to reflect the change in ownership.
- Estates: If multiple people own a property and die simultaneously each share of their ownership would go to into their own estate. At this point each share of the property would follow guidelines set in the individuals will. That means the individual could designate their own beneficiaries to inherit their portion of the property. This can usually be worked out when a spouse passes away, but is much more complicated if the property is owned by working partners, or friends. In this event, there is usually plenty of legal red tape and it is not uncommon for a property to sit for months, even years before a settlement is made.
There is little question that buying, owning or selling a property after an unexpected death is never easy. There are generally numerous legal issues to be ironed out and many steps to be followed. If you are the currently owner of a real estate portfolio don’t want to sit down with an attorney and discuss your options. If you are looking to buy a property either in probate or through an estate understand the steps involved and the time commitment needed.