After a loved one passes, their assets will likely be managed using estate planning, which is the preparation of how a person’s assets will be preserved, handled and distributed after their death. When managing different assets, real estate properties tend to be one of the largest. If a person’s estate has to go through probate court, it can be unclear at first as to what that means for the property’s future. To give you more information and answer any questions you might have, let’s talk more about probate real estate.
What Is Probate Real Estate?
Probate describes the legal process for reviewing the will and assets of a deceased person and determining who those assets will be distributed to. Generally, after a will is deemed valid, the deceased person’s assets will be passed down to the beneficiaries. But that’s not always the case. It’s possible that an individual may not have a will or their will may not be authenticated. Let’s use real estate as an example.
Two terms used to describe each of these probate real estate scenarios are testate and intestate. “Testate” describes the first scenario in which an individual passed away and left a valid will for the estate. On the other hand, “intestate” means that an individual passed away without a will for the estate. Both of these terms have a significantly different impact on the probate process.
In a testate scenario, the estate will be distributed to whomever the will advises. However, an intestate scenario is more complex.
If a homeowner were to pass away without naming any heirs to receive their home, the state would step in to administer the sale of the home through a special probate court that handles probate real estate sales. This process occurs as a result of the vacuum in ownership that’s created when someone passes away.
This process can be very detailed, so make sure to pay close attention to the stages of probate for a real estate property.
How Does Probate Work For Real Estate Properties?
If ownership is being transferred to a benefactor named in the will or if the property is eventually going to be put on the market, you’ll need to enter the probate real estate process. Let’s break this process down step by step.
1. Determine The Executor Of The Estate
The first step in the probate real estate process is to determine an executor of the estate. In a testate scenario, the executor will be named in the deceased individual’s will. But in an intestate scenario with no will, the court will appoint a family member to be the executor. In an intestate scenario, the home will typically be sold in probate court.
2. Hire A Probate Attorney And Petition To Start The Process
After an executor of the estate is named, 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. They will begin by making sure you file a petition with your local court office to start the probate real estate process.
3. 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.
If the property will be sold, it’s also important that a home appraisal is conducted. The home’s listing price will then be determined after the appraisal.
4. Handle Finances
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 who the deceased person owes money to 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.
5. 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?
If you don’t want to go to probate court after the death of a loved one, there are some ways you can avoid probate for real estate properties. 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.
Pros And Cons Of Probate Properties
Now, let’s cover some of the positives and negatives that accompany probate real estate properties for benefactors as well as potential buyers.
There are many reasons why someone might want to get involved with probate real estate. For example, it’s a good opportunity for experienced real estate investors or buyers looking for their first investment property because it offers protection from creditors, lower legal costs and a fair estate value. It could also be beneficial if the seller is highly motivated.
While there are some pros to real estate probate, there are also some cons. For example, one of the negatives surrounding probate real estate is that it involves a more extensive and intensive sale and legal process. It might also mean that there could be higher costs to the estate, a delay on transferring assets or the property could potentially need more updates or home improvements.
How To Find Probate Properties
If you’re looking for a probate property for investment purposes or personal use, you’ll need to conduct a fair amount of research. One way you can find probate real estate properties on the market is by looking through obituaries in your local newspaper. You can also look through court records or wills to see if any deceased people owned property. This information is all open to the public, but if you’re interested, you can also pay private companies to give you information about probate property. Feel free to talk to a real estate broker if you have any other questions about locating or purchasing probate properties.
The Bottom Line
By now, you’ve been able to learn more about real estate property probate and what it involves. If you’re thinking about entering the probate court process, think back to the steps of probate real estate to see if it’s right for you. If you’re hesitant about probate real estate, remember that there are some ways you can avoid the process. To learn more about probate real estate, check out the Learning Center on the Rocket Mortgage® website.
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