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Thursday, July 9, 2015

My dad's will doesn't mention his condo. What will happen to the condo?

A reader recently sent me a note, wondering about how the estate would handle his father's condo when it isn't mentioned in the will. I hear this question pretty often, so I think many of you might be curious about the answer. Here are the question and my comments:

"My elderly father owns outright a condominium with nothing owing. His condo is not mentioned in his will. What will happen to the condo? He has 4 adult children."

It's fine that the condo isn't specifically mentioned in the will. That's not a problem, so long as the will has what is called a "residue clause".

It's not necessary to list each asset, or even the major assets, in a will. Usually the assets are only listed individually if the testator wants to do something specific with them. For example, the will might say that the hockey card collection is to go to Billy, and the antiques are to go to Anne. Or, the will might say that a specific bank account, sum of money, or vehicle is to be given to a specific person.

Most wills don't list individual assets. This is because all assets belonging to the testator are covered by the residue clause. This makes sense, since people's assets change constantly, and it would be unworkable to have to change your will every time you closed an investment account or bought a new car. The "residue" of an estate means everything owned by the person once debts and expenses are paid, and specific gifts (such as the examples I gave above) are given out. It's a catch-all phrase that is an essential part of a will. In your father's case, his condo will fall into the residue.

The will should describe what happens with the residue. You may see that specific word in the will, or you might see wording such as "the rest of my estate". If there are no specific gifts given out first, the will might simply say something like "divide my estate among my four children". Any of these would work as a residue clause.

So that's what legally happens with the condo; it is simply included in the general estate. However, going beyond the legal theory, it's interesting to look at what could happen to the condo once the executor has obtained the grant of probate and is ready to distribute the estate.

Since the condo isn't mentioned, we know that your father didn't leave it to anyone specifically, nor did he give anyone an option to purchase it or direct that it be sold. This means that it's equally available to all four beneficiaries. I highly recommend that the four of you do NOT put all of your names on the title. Even if you all get along right now, it won't work, so just don't do it. The executor may suggest it because it's quick and easy to do. Just remember that it will take five minutes to set up the arrangement, and five years of bickering and court fights to get out of it again.

The cleanest solution is for the executor to sell the condo and split the proceeds among the beneficiaries according to the will. However, assuming that there is enough money in the estate that the sale of the condo isn't needed to pay estate bills, there are other options.

If one of the beneficiaries wants the condo, he or she can opt to take the condo instead of receiving money. This will only work if the estate is fairly large and there are enough assets in the estate to pay the other three an amount equal to the value of the condo. If the estate isn't that large, the beneficiary who wants the condo can buy it from the estate at fair market value, with the purchase price reduced by the amount of his or her inheritance. These options can be worked out simply by discussing them with the executor.

It's a good idea to read the entire will to see what discretion and powers the will gives to the executor. If it's a decently written will, it shouldn't be necessary for the executor to ask the court for permission to sell the condo. If it's a home-made will, it's possible that things would be more complicated.

As a side note, when a beneficiary receives or buys the condo from the estate, he or she is buying the title to the building and NOT the contents of the condo. Furnishings, decor, vehicles, money found in the mattress, jewelry, etc are all assets of the estate and don't go with the condo.

2 comments:

  1. Lynne
    Doesn't all of the above apply to a 'house' as well?

    ReplyDelete
    Replies
    1. Yes. It applies to any asset owned by the deceased alone (i.e. not in joint ownership).

      Lynne

      Delete

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