More often than not, real estate transactions can get tricky, especially if you’re purchasing a property where the previous owner has passed away. Conveying ownership in this scenario can tack on several months to the process and consume you, 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” in. Upon passing the will is enforced and an executor determines the descendants last wishes. If they listed an heir (usually a spouse or family member) then that mentioned individual would take ownership. If there is no will in place or the heir has passed away, the process of “Probate” begins where the Probate Court in the state where the property is located appoints an administrator, or “executor”. The administrator facilitates the process of collecting assets, paying liabilities and ultimately distributing any assets to any rightful beneficiaries. Many beneficiaries who receive ownership of real estate via the Probate process do not have the time, interest, or financial resources to own, renovate, or maintain the property. There are costs associated with owning real estate where, in some cases, it may make more sense to sell the inherited propert to a cash buyer who can purchase the property in “as-is” condition.
- Trusts: A “trust “is another popular estate planning option for those looking to avoid probate. Essentially an individual or “Grantor” puts ownership of a property into a trust and names a “Trustee”. Should the grantor pass away, the Trustee facilitates the sale and handling of the property should. There are numerous ways for the property to go into trust as well as numerous types of trusts. For example, 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.
- Joint Ownership with Right of Survivorship: The passing of a property owner doesn’t necessarily have to trigger a sale. There are many cases where husband and wife own equal shares in a piece of real estate. They go on the mortgage application and title as joint owners. If one of the individuals passes away, the surviving owner immediately inherits their partner’s 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.
Buying, owning or selling a property after an unexpected death can certainly have its challenges. Within these challengers there can be many steps to be followed before a descendant can have the legal standing to sell an inherited property.
