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Thursday, August 14, 2014

Can an executor sell a property to his friend without telling the beneficiaries?

A comment left by a reader touched on the subject of an executor selling an estate property to a friend. Many beneficiaries are concerned when they see an executor undertaking transactions with estate assets when the transactions don't appear to be what the law calls "at arm's length". In other words, beneficiaries worry that the executor will be more interested in helping his or her friend than in looking after the welfare of the beneficiaries.

Since this is a very common concern, I thought it would be a good idea to talk a bit about this. Here is the note I received from the reader: "Can an executor sell a property in the estate to his friend/relative without asking/telling the beneficiaries?"

As you can see, this question is not only about the powers of the executor, but also about the powers of the beneficiaries when it comes to governing the executor's actions.

The executor's job when it comes to selling an estate asset such as real estate is to get the best deal he or she can on behalf of the estate, and to do so within a reasonable time. There are several variables at play, particularly market conditions. Beneficiaries might be shocked or disappointed if a property is sold for, say, less than the deceased had paid for it ten years earlier, but if the market has dropped, there is nothing the executor can do about that.

An executor has the duty to pay any debts outstanding that are secured by the property (such as liens or lines of credit) and if necessary, renovate or clean the property to make it more salable.

However, there is no rule that says the person who buys the property from the estate cannot be a relative or friend. As long as the executor is truly selling for a reasonable market price and not giving someone a "deal" based solely on the relationship, then there is no reason not to sell to a relative or friend. In fact, this is sometimes very advantageous to the estate because it may save the costs and delays associated with advertising the property, showing the property to prospective buyers, and perhaps the realtor's commission as well.

Similarly, there is no rule that says an executor has to tell the beneficiaries who the buyer is, or ask for their approval of the buyer. Selling the property is up to the executor, and this includes selecting the most appropriate purchaser.

To be clear, the beneficiaries have the right to object if the executor is under-valuing the property, because selling at too low a price directly affects what the beneficiaries are going to inherit. Under-valuing breaches the executor's duty to maximize the estate. But the beneficiaries do not have the right to approve or disapprove of a specific buyer.






13 comments:

  1. Lynne, Thank you for the information on your blog. We have similar situation. I am a beneficiary and the executor sold the home without telling anyone. We were shocked. We later found out he sold it to a friend (nobody in the family knows him). Since the market was up, we feel he sold it cheaper than its value. He said he didn't. Maybe we would have bought it for the same price. Is there anything we can do?

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    Replies
    1. That depends on what it is you want to do. You can't make him rescind the deal so that someone in the family can buy it.

      Your options fall within the concept that as beneficiaries, you have the right to insist that the executor does not cause any financial loss to the estate. Selling the house, whether to a friend or a stranger, at a price below fair market value would of course be a loss to the estate.

      It would be helpful if the executor would show you the valuations or estimates he received from realtors before he listed the house. I always advise executors to get three, but not all of them do.

      Note that asking the executor to show you the valuations will probably put his nose out of joint, if he is as defensive as most executors are. But if he has valuations that show that he sold the house for the right amount, then the discussion about selling it too cheaply should be over.

      If the executor is not able to back up his actions with proper paperwork, your steps are as follows. Fnid out the real market value of the house (no guessing; it has to be independent information). Confront the executor and request that he repay the estate either by foregoing his executor fee, or by paying money into the estate. When he refuses to do either of those things, you approach the court for an order that will compel him to do so.

      Lynne

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  2. This information is very helpful. Thank you. By the way, every beneficiary should read the book you wrote. It contains so much information and is very easy to understand. I think beneficiaries need to be aware and informed of the process. It contains a lot of information that would never have crossed my mind. You're helping a lot of people...Thanks.

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  3. Hey Lynne, My friend too faced a similar issue The executor sold their property without telling anyone . heir family were really shocked and they consulted a real estate lawyer (http://www.gcylaw.com/real-estate-service ) and filed a suit against the executor .

    ReplyDelete
    Replies
    1. Since the executor has the right to sell the property without telling anyone, there must have been some other issue, such as the executor selling at too low a price. As I said in my original post, the executor doesn't have to consult anyone when he sells the property and being shocked is not grounds for a lawsuit. I appreciate that you wanted to put in a plug for the lawyers whose page you mentioned, but please do not make it sound as if the executor can be sued for not consulting about the sale of the estate property.

      Lynne

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  4. Hi Lynne;
    I am the exècutor of my uncles estate. 3 cousins ,my brother and myself are the inheritors.
    After telling the other inheritors that I had a handshake deal to sell the 66 acres plus house, on Northern Vancouver Island,for above market and value , a cousin paid a timber buying company to estimate the value of the timber. The timber is worth 3+ times,minus expenses to log,the selling price.
    My uncle passed in September 2012 and a verbal deathbed wish ,in front of myself and my father, was for the property to remain unlogged.
    The 5 of us agreed to his wish and to continue to pay the taxes.
    Since this agreement the property,which has a 1500 foot driveway and no visible neighbours,has had 2 thefts and a campfire built within 6 feet of the wooden veranda.
    1 cousin lives within a km.of the properties driveway and another cousin within 5 kms. I live a ferry ride and 100 kms.away. My brother is in Ontario and the 3rd cousin lives in the USA.
    My brother,who comes out 3 times yearly ,to visit our dad , and myself are the only ones to check on the place and clean up even after requesting that the 2 cousins who live nearby pitch in. Even just to walk down to make sure a tree hasn't landed on the house or go inside to check for leaks. The house is showing wear and tear.
    My question is :can I be sued for the difference in the agreed upon sale price and the cost of the timber.
    The purchaser are willing to a restrictive covenant,that runs with the land, stating the amount of trees that can be cut. They also agree ,with notice, that any of the 5 inheritors plus direct relatives in future generations may enter the property to check the covenant is being followed.

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  5. Replies
    1. Hi Lynne,
      Just wondering if you had a chance to look into my question?
      Thanks Roy(dutchdog)

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    2. Actually I don't "look into" anyone's questions. Most days I don't have time to sneeze, never mind do free legal research. The questions that are long and detailed take time for me to get to.

      Lynne

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  6. This comment has been removed by the author.

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  7. I have a big dilemma in my family right now. My grandmother passed away leaving a cabin in Canada to her 6 children. So technically they're all 1/6th owners. The eldest sibling is extremely pushy/bossy/threatening. She has talked 4 of the siblings to simply GIFT their share to the 2nd oldest Susan. My mom has been pretty much forced to sell her share for $10,000 because she flat out refused to gift it. But if she wasn't being pressured she'd rather just stay 1/6th owner and Susan would retain the other 5/6ths of the property. It has extreme sentimental value to my mom. My mom did come around and say that she would take the 10k as long as after Susan passes it returns back into the hands of my family. Which was agreed to by all. Now they want her to sign a beneficiary agreement that DOESN'T INCLUDE the stipulation that it will return to the family. Julie said that Susan has written in her will that it go back to the family but she could change her will whenever she feels like it or finds a good deal. The property is valued at 78,000 Canadian but it was assessed by someone Susan hired and I'm sure she had them low ball the value. But my family is now saying that if my mom doesn't sign then she won't get 10k and that they don't need her to sign in order to give Susan the property. Is that legal for them to do if my mom owes 1/6th of it? PPLLLEEAASSRE HEELLPP ME

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    Replies
    1. I hope everyone who has left their cabin to ALL of the kids reads your note. Leaving the cabin in all the names IS NOT A GOOD IDEA. I'm sure I'll say that a hundred times more.

      Anyway, on to your question. Do they need her signature? That depends. Was she specifically left 1/6 of the cabin, or was she left 1/6 of the estate, which just happens to be a cabin? It may seem like mincing words but it makes a big difference.

      If your mom was given 1/6 of the cabin, then it cannot be given away or sold without her signature.

      If your mom was left 1/6 of an estate, then the executor has the choice of whether specific assets in the estate are sold or distributed. Normally that is done with the cooperation and input of the beneficiaries but at the end of the day, the executor is the one with the legal authority to decide about selling.

      The specific wording of a will is extremely important. It would be a good idea for your mom to take the will to a local lawyer for an interpretation of exactly where she stands.

      I also agree that Susan could change her will in the future or sell the cabin and your mother's deal would not be honored. In any event, all agreements regarding land must be in writing. While verbal contracts can be binding, if they are about land they must be in writing.

      Lynne

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