When a person who owns real estate in California passes away, and the inheritors want the real estate sold, the sale can occur in one of four ways. Here are the details.
- Living trust property. The inheritors can sell real estate held by a living trust after they take title to it as part of the trust administration.
- Joint tenancy property. If the inheritor was a joint tenant owner of the real estate, or owned it with their deceased spouse in a “tenancy by the entirety,” they can sell the real estate after they take title to it. A San Diego Law Firm attorney can assist with the title transfer and recording, and the transfer of the title insurance, at a modest cost.
- Property passing by the terms of a will. The inheritors are determined by the terms of the will. If the will does not require the real estate to be sold, or it does not need to be sold to pay expenses and bequests, or for other reasons, the inheritors can sell it after probate is over and title has been transferred to them.
- Property passing without a will. A “no will probate” is needed if the deceased had no living trust, no joint owner, and no will. The inheritors are determined by state law. Again, the real estate may need to be sold during probate to pay creditors or for other reasons, or the inheritors can sell it after probate is over.
The first two methods are the fastest and easiest – the inheritors sell the property at their convenience in the traditional way. But when real estate has to go through probate, the sale must adhere to the legal requirements of California probate law.
Probate Sale under IAEA
In most probates, the real estate can be sold in the normal way by the representative of the estate without interference by the probate court. This is authorized by the Independent Administration of Estates Act (IAEA). The representative is a person who was named as executor in the will, or who was appointed as the estate administrator by the probate court. However, either the representative or the probate court – who can act when an “interested party to the estate” files an objection to the sale under the IAEA – can decide the property should be sold with a confirmation hearing.
Traditional Probate Sale
When court confirmation is chosen by the representative or ordered by the court, then the real estate is sold according to the procedures required by California probate law. Here is how those procedures work:
- A probate referee appraises the property; this appraisal must occur no more than one year before the sale.
- The estate hires a real estate agent who has probate sale experience. Your San Diego Law Firm probate attorney can recommend a qualified agent to you. (Real estate commissions must be confirmed by the court when the property is finally sold. The court must honor any commission split percentages – i.e., 50-50, 40-60.)
- The agent lists the property as a probate sale.
- A potential buyer makes an offer. If the estate representative likes it, he or she can conditionally “accept” it and sign a purchase agreement. However, this purchase agreement is not binding on the estate.
- After the buyer removes all contingencies (such as an inspection, financing approval, etc.), the probate attorney files a petition for a confirmation hearing. The hearing is usually held 20-40 days after the petition is filed.
- The buyer must deposit 10% of the property’s purchase price before the court confirmation hearing is held.
- The sale and the accepted offering price is advertised in a local paper for the time specified by law, and in the way specified by law.
- The confirmation hearing is held. At the hearing, anyone can bid openly for the property. The first overbid must be at least 5% above the accepted price, plus $500, and overbids cannot have any conditions at all – no inspections, no financing, no anything else. Then the court makes a ruling on how much higher the next overbid must be – i.e., $1,000 higher, or more. The bidding ends with the final bid.
- The court confirms the sale to either the first buyer or an over-bidder, whichever is higher. The purchase price accepted must be at least 90% of the probate referee’s appraised value of the property.
- A confirmed overbidder must pay a cashier’s check deposit for 10% of the confirmed purchase price, just as the original buyer did. If the overbidder then defaults, he loses his deposit. When there is a confirmed overbidder, the original buyer gets his deposit back.
- If there is a confirmed overbidder, the original buyer gets his deposit back. Otherwise, the sale to the original buyer proceeds, and he must arrange for payment of the remaining 90% sales price.
Because these procedures are time-consuming and limit the field of buyers to ones who are willing to risk losing the property to an overbidder, it is obviously much better for the inheritors if the deceased had a living trust and they could inherit the property quickly through the trust and then sell the property in a normal way.
A living trust is also better than a joint tenancy between any two or more persons, or a tenancy by the entirety for a married couple, because a living trust allows the inheritor — even a spouse — to receive the deceased’s ownership interest at a “stepped up” basis, meaning the inheritor(s) will not have to pay any income tax on the appreciation of the house before the date that the deceased passed away. If there was no living trust, and the house has appreciated substantially, a probate sale either through the IAEA or traditional probate will be valuable for this same benefit.
Call San Diego Law Firm for Help Inheriting Real Estate
When a loved one has passed away, San Diego Law Firm’s experienced will, trust, and probate attorneys have the skills and years of experience to make sure all assets, including real estate, are transferred to the inheritors as quickly as possible, with all safeguards in place, in full compliance with California law. We have handled many probates and living trust administrations that required real estate sales, and we can give you sound advice and complete all of the paperwork so that your family can attend to other matters.
For more information or to schedule an appointment, click the button below, or call us at 619-794-0243. We look forward to helping you.