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Monday, April 11, 2016

Adding all beneficiaries to property before sale is an extra, pointless step

When an estate is being divided among a group of beneficiaries, and there is real estate in the estate, does that property have to be put into the names of all beneficiaries before it is sold? Plenty of executors do things that way, but is it necessary? Is it a good idea? A reader recently sent me a note asking about how that works, and in the process, illustrated some of the issues that arise. Here is his note followed by my comments.

"There are 8 beneficiaries in an estate. There are 2 parcels of land in the estate that are going into all of the beneficiaries names, indicating that each beneficiary owns 1/8 of each of the two parcels of land. If the majority of the beneficiaries want to sell the two lots after the estate is wound up and agree to, can they? OR do all beneficiaries have to agree to the sale? What happens if one or two of the beneficiaries do not want one of the parcels of land to be sold? Can they simply object? Or do they have to offer to purchase it themselves from all of the other beneficiaries? The executor (who is also one of the beneficiaries) is informing everyone that the "majority rules", but I am unsure if that is actually accurate."

And so it begins. The pandemonium that always accompanies multiple names on a title is about to unleash itself on yet another family.

You are definitely doing this the hard way. I realize that you're not the executor and it wasn't your decision, so you are not the one to blame. In fact, it may not even have been the executor's decision, if the will directed him to do it that way. In any case, there should be no need at all for these properties to pass through the hands of the beneficiaries before being sold.

Your questions demonstrate exactly why putting several names on one property is a bad idea. Any of the beneficiaries who owns 1/8 of a title - and when you say each owns 1/8 I automatically assume that they are tenants in common and not joint owners - can sell his or her share to someone else. And if one of the eight passes away before the paperwork is done, his or her 1/8 will fall into his or her estate and hold up the rest of you while that estate is processed.

No, "majority rules" is not correct. If a person owns title to property, he or she cannot be forced to sell because other people want to sell theirs. And this is where most of the problems start.

If one of the beneficiaries does not want a property to be sold, he or she is not legally obligated to offer to buy out the others, but this might be a good solution. Assuming the sale price can be agreed upon and others don't object. If a beneficiary just says no to sale but does not want to buy the property, then it's probably going to end up in a lawsuit because the other beneficiaries are not going to be content to wait around for that person to decide everyone can now have their inheritance.

Putting the names of the beneficiaries on this property was a pointless step and probably made things worse. My impression is that the executor is trying to move the estate along and is doing the best he can. I've noticed over the years that many executors think properties must be put in the names of the beneficiaries before sale, so this executor certainly wouldn't be the first to do this.

However, a better option for the executor would simply be to sell the properties while they are in the name of the estate, pay the bills (realtor, lawyer, taxes) from the proceeds, then split the rest of the money equally among the beneficiaries. If one of the beneficiaries wanted to buy a property from the estate, that would be allowed, so the process would not preclude the property staying in the family.

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