Probate Real Estate: An Introduction
Miranda Crace5-minute read
December 01, 2020
Lawyers don’t agree on much – it’s sort of baked into the job – but they all come together on one thing: everyone should have a will. Why? Because when we die, legal ownership of our earthly remains, particularly our real estate, must be transferred to someone, for a host of legal reasons. The law doesn’t care who takes ownership, as long as someone does.
A will documents where we want our property to end up. As long as they are properly and freely made, courts will honor them, and your wishes will be carried out. But when someone dies without a will, their estate, which is all the property they leave behind, must be disposed of in some way. The legal way to do that is a process called probate.
What Is Probate Real Estate?
Probate describes the legal process for reviewing the will and assets of a deceased person, often called a decedent, and determining how those assets will be distributed. Probate courts have jurisdiction over those assets, as it is their role to protect those assets. If the decedent left a will and it is deemed valid, freely made and authentic, the deceased person’s assets will be passed down to the beneficiaries. If anyone contests the will, the probate court will resolve the lawsuit.
But many people pass away without leaving a will behind. This creates a legal condition called intestacy. In this case, the court does not know how the decedent would like the estate distributed, and so the court applies probate law to determine who gets what. Essentially, it works outward, from spouses and children, to parents, then more distant relatives, but the exact order of inheritance depends on the laws where the decedent lives.
In many intestacy situations, the main asset to be disposed of is the home in which the decedent lived. If the decedent’s spouse is still alive, they will almost always continue owning the home through a joint tenancy (described below). If there is a single child who wants to keep the home, they will generally be able to do so if the home is owned outright. If the decedent had a mortgage on the property, the child would have to pay it off, either with their own cash or by applying for a new mortgage in most cases.
Of course, if there are multiple children, or stepchildren and half-children involved, the situation rapidly becomes more complicated. The home will generally be sold and the proceeds split.
How Does Probate Work For Real Estate Properties?
If the responsibility for disposing of a real estate asset in probate falls on you, you’ll have to understand the way probate courts sell real property. Let’s break this process down step by step.
Determine The Executor Of The Estate
If you will be handling the estate, you’ll need to have the court name you as executor of the estate. In a testate scenario, the executor will be named in the deceased individual’s will.
Hire A Probate Attorney And Petition To Start The Process
While you act as executor, you’ll want to hire a probate attorney to help guide you through the probate real estate process. Your probate lawyer will represent you through the entire process and help you with anything that arises, and is paid by the estate. You may confer with the attorney as needed to work through the probate process.
Take Inventory Of The Estate
When you take inventory of the estate, make sure to gather important documents and information. This might include estate planning documents such as the will, living will or power of attorney, assets such as stocks, bonds, cars or life insurance, and debt.
Contact A Real Estate Agent
If there is a home to be sold, it’s also important that a home appraisal is conducted and a real estate agent experienced with selling probate real estate is contacted. The agent will pull comparables for the area and read the appraisal to determine what the asking price on the property should be.
After taking inventory of the estate, you’ll have a better understanding of the finances of the deceased individual. With this information, you’ll first need to notify known creditors to whom the deceased person owes money and pay out their claims with money from the estate. You can also use the estate to pay other debts.
Once these debts have been paid, you’ll need to file income tax returns for the deceased individual.
Wait For Assets To Be Transferred
The final step in the probate real estate process is waiting for the assets to be transferred. If the property is not being sold in court, the estate will be legally transferred to the beneficiary after all bills and creditors are paid and the executor petitions the court to transfer the assets.
On the other hand, if the property is being sold in court, it first needs to be listed. After the price is decided, the property will be put on the market. Once an offer is submitted and terms are negotiated, a notice will be mailed to all heirs of the estate giving a 15-day period to object to the sale of the property. If no one objects, the sale of the house will be officially processed in court.
Can Probate Be Avoided For Real Estate?
Some people, wishing to avoid the public court process that is probate, plan ahead to avoid it altogether. There are ways you can avoid probate for real estate. Let’s learn more about your options.
Revocable Living Trust
One of the easiest ways to avoid probate for real estate is with a living trust. With a living trust, the creator of the trust will name themselves as trustee until they pass away. They’ll also name a successor trustee and trust beneficiaries to manage and distribute the assets or estate when they die. After passing, the trust can’t be changed. The owner can use or sell the property, but the property belongs to their trust, not to them personally.
Joint tenancy is another way to avoid probate for real estate properties. You can put a joint tenant on your property’s deed if you’re the sole owner of the property. Then, when you die, the property’s ownership will automatically go to the joint tenant without going through the probate process.
Transfer On Death Deed
A Transfer On Death (TOD) deed can help you avoid probate by choosing a beneficiary to inherit your real estate property at your death. You’ll remain in control of your property during your lifetime and can even have the right to revoke the TOD deed.
Life Estate Deed
A life estate deed will give you the power to use your property during your lifetime and then transfer the property to another individual when you die. You’ll avoid probate with a life estate deed, but you’ll also lose the opportunity to sell, mortgage, or make decisions on behalf of the property without the agreement of the other beneficiaries. Two types of life estate deeds are traditional life estate deeds and enhanced life estate deeds.
The Bottom Line
By now, you’ve been able to learn more about real estate property probate and what it involves. If you’re concerned about whether elderly loved ones have planned for how they’d like their estate to be handled, talk to them about meeting with an estate or probate attorney today. Check out more in the Learning Center on the Rocket Mortgage® website.
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