When it comes to real estate transactions, particularly during the closing process, navigating the complexities of probate and estate planning is crucial. Estate planning and probate can have significant implications for the title of the property being bought or sold, and without the help of a knowledgeable attorney, it can be difficult to ensure your interests are protected the way you intended them to be. In this article, we will explore what everyone needs to know about probate and estate planning in the context of real estate closings.
What is Probate?
Probate is the legal process through which a deceased person’s estate is settled. It involves determining whether the deceased person had a will and proving its validity, identifying and inventorying their assets, paying off debts and taxes, and distributing the remaining assets to beneficiaries in accordance with the court’s orders.
What is Estate Planning?
Estate planning involves the preparation of legal documents, such as valid wills and trusts upon death.
As it relates to real estate and monetary assets, it allows individuals to specify how and to whom they want their assets to be distributed, as well as appointing individuals to be responsible for distributing the assets in accordance with the deceased’s wishes and/or court orders.
What are the costs associated with probate?
The costs associated with probate typically include court fees, attorney fees, executor fees, appraisal costs, and any outstanding debts or taxes owed by the deceased. These expenses can add up and may vary depending on the complexity of the estate and the state’s probate laws.
Implications for Real Estate Closings
Probate and estate planning can have several implications for real estate closings, and if not handled correctly, can cause serious title issues.
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Title Clearance: Clearing title is essential for establishing the new owner’s legal rights to the property. In order to issue title insurance, the closing agent must first satisfy several conditions,
with the primary objective of verifying who the correct owner of record is, and who has the authority to carry out the transaction. Estate planning efforts and the probate process can make this step a bit more complicated, as the true property owner may not always be obvious.
Probate:
If the property being sold is part of a deceased person’s estate, the courts may need to oversee or approve the sale as part of the probate process, whether by providing an Order Determining Homestead to remove the property from probate, or by providing an order approving the sale. A popular misconception is that having a will in place avoids probate altogether. Having a will in place does not avoid probate, but rather helps the courts carry out your wishes upon death and instructs them on who to name as the beneficiaries in their orders. Failure to obtain specific orders or to wait for the completion of the probate process can result in real estate transfers being overturned. The only way to plan ahead and help avoid probate is by utilizing a trust. When created properly and used correctly, trusts avoid probate by naming Trustees and appointing specific powers to act on behalf of the creators of the trust. If the original creators of the trust pass away, Successor Trustees can quickly step up and take over the management of assets held by the trust, without having to go through the probate process to be appointed.
Estate Planning:
When properties are sold, sellers often say “oh, my property is held in a Trust!”. For closing agents, this can be a red flag that extra steps are necessary to clear title. Many people create trusts, but without properly utilizing this estate planning tool, it may not yield the desired outcomes. Just because a trust was created, does not mean that assets, including real estate, were properly retitled into the name of the trust. Without properly retitling assets, the trust remains an empty vessel and assets remain in the individual names of the creators. For real estate, this means conveying properties into the name of the trust by executing a deed and signing over individual ownership interests. Documents such as trusts and deeds should always be prepared by an attorney, as specific language must be included in both to ensure proper titling and conveyance powers in the future.
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Signing Authority: Whether a property is part of a probate or is being sold by a trust, only specifically appointed and authorized individuals can carry out a real estate closing. Failure to have the correct person sign off on contracts and closing documents can void a sale and result in devastating financial consequences.
Probate:
When a property is part of the probate process, the courts will appoint an individual to act on behalf of the estate. This appointed individual is the only person who has the necessary authority to sign contracts and closing documents, and is required to act in accordance with the specific instructions outlined in court orders.
Estate Planning:
When a property is held in a trust, only those named as Trustee may have the authority to execute contracts and closing documents. Closing agents will require a copy of the Trust or Certification of Trust to ensure the person presenting themselves as Trustee has the power to convey real estate and act on behalf of the trust.
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Distribution of Assets: Ensuring the proceed disbursement instructions are followed is essential for a smooth and legally sound real estate closing.
Probate:
Documents such as wills and trusts dictate how the deceased person’s assets, including real estate, are to be distributed among beneficiaries. These documents provide clarity and guidance regarding the disposition of real estate assets and help avoid disputes among heirs.
Orders issued by the courts as part of the probate process can also dictate how assets and sales proceeds should be distributed.
Estate Planning:
While estate planning documents may be in place, they do not always apply to the distribution of sales proceeds. If the sellers do not hold the property in a trust, then proceeds can be disbursed to them directly. If a property is held in a trust, then closing proceeds will need to be disbursed to an account in the name of the Trust.
Working with a Knowledgeable Team
Whether navigating probate or preparing estate planning documents, working with a knowledgeable and trusted attorney makes all the difference. When real estate is involved, it is essential to work with an attorney who specializes in real estate, estate planning and probate. When preparing estate planning documents, working with an attorney who has a strong background in real estate and probate can help avoid probate or long-term title defects, and can simplify the steps for transferring property ownership down the road. When working through the probate process, an attorney who is also equipped to handle real estate transactions will streamline and expedite the process of being able to sell properties, while ensuring that all legal requirements set out by the courts are met.
Understanding the implications of probate and estate planning is essential for all parties involved in real estate transactions. Whether you’re buying or selling property that is part of a deceased person’s estate or being sold from a trust, it is crucial to ensure that all legal requirements are met and that the title of the property is clear. By working with experienced professionals like the attorneys at Lacey Lyons Rezanka, buyers and sellers can navigate the probate and estate planning process with confidence and peace of mind, knowing their best interests are protected.