How to prevent family feuds from erupting over an estate
By Melanie Scaringi of Scaringi Law posted in Estate Planning on Thursday, October 15, 2015.
When a loved one dies, grief can rapidly turn to anger as heirs decide how to handle an estate and divide property.
Especially when adult children are making decisions about their late parents' home, it's not uncommon for differences of opinion to erupt over the value of the house or a allowing one child to have the home in a way that's fair to other siblings.
Because commercial properties are usually owned by some sort of business entity that has provisions in place to address the death of an owner, most real estate inheritance issues surface over residential real estate.
When helping clients with their estate plans, I always counsel them to consider their executor carefully, since this person will essentially have the final say over how everything is handled. When real property is involved, it's always important to have an experienced attorney and real estate agent who can help the executor bring the heirs to consensus on the path forward.
Although most estates end up dealing with homes, the following advice applies to any real property:
1. It's worth what?
I can't count the number of times adult children expect a home to sell for far more than it's worth, based upon what they were told by mom or dad. Heirs, like homeowners, can hold unrealistic expectations of value because of their emotional ties to the property.
In these cases, the executor should have the home appraised and engage a Realtor with a good feel for the local market. Should an heir take issue with the appraised value, that person can opt for another appraisal.
A second appraisal is also a good idea if one heir wants to buy the home and takes issue with the initial valuation. In these cases, it's not uncommon to average the two appraisals to determine what the heir will pay for the home.
2. You're on the clock
Under Pennsylvania law, an estate has nine months to file a Pennsylvania inheritance tax return, but you can get a six-month extension. This is an important deadline because it's much easier to list the actual, fair-market-value, sales price on the Pennsylvania inheritance tax return from the start, rather than listing the appraised value on the return and trying to get a partial refund of tax later if the property ultimately sells for less than expected.
Even with the extension, it still doesn't leave a lot of time to clear out a home, make any necessary repairs and get it ready for showing. Not to mention that you'll want to wait for the right time of year to put the house on the market, such as the summer, so families can move in before the start of the school year.
If a home is jam-packed with furniture and belongings, some families rent a storage facility to store the belongings so that they can prepare the property for sale. The rent for the facility can come from the estate, which is allowed to cover reasonable expenses incurred to aid in its proper and efficient administration.
Likewise, expenses for making repairs to the house, cleaning and other costs can be billed to the estate and taken off the top, as long as sufficient money is available to pay other debts. It's not unusual for a family member to agree to get the house ready, and in such cases, the estate can pay that person a reasonable hourly rate for the work.
3. Realtors, make sure you're dealing with the right person
When either an executor or administrator for an estate is appointed by the Register of Wills, they are issued Letters Testamentary or Letters of Administration attesting to their decision-making authority. They should also get a "short certificate,'' so named because was originally issued on a short piece of paper (1/2 a sheet). This document (now issued on regular 8.5 x 11 paper) also attests that the bearer can make decisions, including having the authority to sell real estate. You will also want a copy of the death certificate.
Frequently, the estate's attorney is involved in the sale of real estate, so it's a good idea for Realtors to touch base with that person to make sure everyone is on the same page.
4. Keep the rent coming
Sometimes estates include rental properties. Especially if it's an investment property, like an apartment, leases can stay in effect. Having it rented will make it more attractive to would-be buyers. If an heir wants to move into the property, the estate can either follow the terms of the lease or go through eviction proceedings.
5. Honesty really is the best policy
When real estate is sold, the seller normally is responsible for filling out a disclosure statement listing any problems or issues with the property. But when an estate is selling a home, the executor is not expected to be familiar with the house, and it is not uncommon for the disclosure to be virtually blank.
But if there's a problem that heirs know about, I always advise them to be honest. If a significant problem is left off the disclosure, but it can be shown that an heir was always visiting the home and should have known about the issue, the buyer can come back for damages. It's just not worth the aggravation down the road. So if you know of a problem, either fix it, or disclose it and negotiate the sale price accordingly.
6. Be transparent
Yes, the executor calls the shots in how an estate is handled, but often it makes sense to discuss the reasons for certain decisions with the heirs so that they are not surprised at the outcome.
Heirs who take issue with how an executor is handling an estate can go to court and seek to have the person removed. Before an estate is settled, heirs can also ask the court for a formal accounting and challenge decisions and expenditures made by the executor.
Disagreements that head to court can be costly. It's always better to talk everything out and come up with a plan that everyone can agree upon.
Choosing the right executor, estate attorney, and Realtor will go a long way toward a smooth resolution.
Selling real estate as part of an estate doesn't have to be a headache or a heartache. By far the biggest issue ends up being disagreements over the selling price.
I always tell clients to keep in mind that when a property is sitting empty, it is costing the estate money in terms of utility bills and upkeep. Even if you end up selling your parents' home for a bit less than expected, a quicker sale can end up saving money and aggravation.