Real Time Web Analytics

Monday, March 14, 2011

Can the executor sell an estate property to a family member?

An executor who is looking after the estate of someone who has just passed away has the obligation to gather in all of the assets of the deceased, pay the bills and distribute the remaining property to the beneficiaries. Usually the executor must deal with the house or condo owned by the deceased. Most likely he will sell the house and divide the net proceeds among the beneficiaries. But what if one of those beneficiaries, a family member of the deceased, wants to buy the house rather than having it sold outside the family? Can the executor do that?

The executor must first look to the will to see whether there is anything in the will that would prevent this. For example, the house might be left to one of the beneficiaries as their inheritance, either outright or in a trust. Or the will might state that a certain beneficiary has a specific amount of time to come forward with an offer to purchase, during which time nobody else can buy it. This might happen if the deceased had felt that more than one of the children might be interested in the family home, or if there is something unique about the property, such as a farm or family cottage.

Another option, although a rare one, is that the deceased might have specifically directed that the estate be liquidated, possibly to prevent any of the beneficiaries from owning any particular property.

If the will doesn't specifically prevent the executor from selling to a family member, the executor can go ahead and arrange to sell the property to the family member. It must be sold at fair market value, in other words, the price it would fetch if it were sold on the open market. (Executors would be well advised to protect themselves by gettiung two or three appraisals before agreeing on a price).

The executor must always remember that the beneficiaries can't receive anything from the estate until the deceased's debts have been paid, so it's possible that the house is needed for paying debts. In that case, the family member who wants the house is out of luck.

If the family member who wants to buy the house is a beneficiary, and the house is worth less than the beneficiary's total inheritance, the beneficiary can simply choose to take the house instead of cash. For example, the beneficiary's share of the estate might be worth $500,000, while the house is worth $400,000. Instead of taking $500,000 cash, the beneficiary might want to take the house plus $100,000.

If the beneficiary's share is less than the value of the house, the beneficiary may still use his or her inheritance to buy the house. For example, if the beneficiary's share is going to be $200,000, and the house is worth $400,000, obviously the beneficiary can't simply take the house. But he or she would only have to pay $200,000 for the house, as the other $200,000 is coming out of the estate.

Don't try this without the help of an estate lawyer!

One last thing that might cause a problem for the executor is a lack of powers and authorities in the will. This is a section of the will in which your estate planning lawyer examines your goals as stated in the will, and the assets you own, and includes the legal wording that will make sure your wishes are carried out in the most effective way possible. This is almost always missing from home-made wills, and frankly, sometimes even in the wills drawn up by non-specialist lawyer.

For example, in many jurisdictions, the law says that if an executor needs to sell the house from an estate to pay the bills, he doesn't need anyone's permission. However, if the executor is going to sell the house for any other reason - such as to sell to the beneficiary discussed in this post - he does need permission. He needs the written ok of all residuary beneficiaries. If one of those beneficiaries is a minor, the permission needs to come from the Office of the Public Trustee.

Having said that, the lawyer drawing the will should have included a clause that dispensed with the otherwise needed permission.

5 comments:

  1. Both examples above are totally wrong The beneficiary has a share in the house they DO NOT pay their share only the difference between their share and final difference
    Example 3 beneficiaries with equal shares in an estate and a house worth 150,000 ...each has a 50,000 share in the house, so if one wants to take over the house they pay 100,000 instead of as your examples above...Your examples deny the beneficiaries share

    ReplyDelete
    Replies
    1. No, you are incorrect. A one-third share of the estate may be paid by any combination of assets that adds up to the value of one third. It does NOT mean that each person gets one-third of each item. The house could be sold right from the estate, and the beneficiaries do not split the proceeds until AFTER creditors and bills are paid and claims are settled. There is a difference.

      Lynne

      Delete
  2. I am one of the executors to my fathers will. He had a rental property that is in ruff shape to say the least. My husband and I have offered to buy it and leave the tenet in it that has been there for 6 years in order for our family not to lose money for the estate. I have 4 other siblings listed on will with us who have agreed to sell us the property. The other executor refuses to sell to us. Is there anything that can be done to allow us to buy the property without her standing in the way

    ReplyDelete
    Replies
    1. Is she refusing to sell to you, or is she just refusing to sell the property at all, to anyone?

      If she won't sell specifically to you, what is the reason? Is the price too low? Does she believe it's not permitted under the will?
      Does she have another buyer in mind? On specific offers, co-executors have to be in agreement, so it might be worthwhile to try to find out what the problem is.

      If she is just refusing to sell at all, that's a different story. Obviously the assets of the estate must be dealt with and the property has to be sold sooner or later. It is generally not in the best interests of an estate for a property to be held any longer than necessary as that causes extra risk and extra costs. If she just doesn't want to sell it at all, she is starting to sound like someone who is not doing her executor's duties.

      I suggest that if you two simply can't come to an agrement, try finding a mediator to work this through. While taking it to court would resolve the matter one way or the other, it would be a shame for the estate to pay for a lawsuit over this. Try to keep it out of court if you can.

      Lynne

      Delete
  3. I am a co-executor of my father's estate. The other executor refused to sell the house to my sister and I for fair market value. He named a price, lowered it by 110K the next week for the general public and then ultimately did the negotiation which led to the sale of the house to a member of the public for 170K less than the price he stipulated for my sister and I. Can I sue him for making it impossible for my sister and I to buy our parent's home?

    ReplyDelete

You might also like

Related Posts with Thumbnails