LEGAL CORNER: Representing a Decedent’s Estate: Important Issues When Selling Real Property and Co-ops
John Dolgetta, Esq. | November 15, 2022
There are many critical issues real estate licensees and real estate attorneys should be aware of when it comes to representing the estate of a deceased individual. It is important for these professionals to have a basic knowledge of these issues before being formally engaged by an estate, the nominated representative of an estate, or the trustee of a decedent’s trust, to sell real property or a cooperative apartment.
Often individuals who are a named (nominated) executor in the Last Will and Testament, or who is the trustee in a decedent’s Trust, will contact a real estate agent before contacting an attorney in order to sell the property of a decedent because they believe they are automatically authorized to sell the property on behalf of the Estate or Trust. The individual will provide a copy of the decedent’s Will or Trust to an agent and the agent may believe that the agent is authorized to enter into a listing agreement with that person simply because that person is the named executor in the Will or the named Trustee.
Referral to an Experienced Estate Attorney is Critical
There is much more that needs to be done before a real estate broker may enter into a listing agreement and list the property for sale. It is critical that the agent and/or real estate attorney refer the potential client to an attorney experienced in Estate administration. An experienced Estate attorney will be able to determine whether a probate proceeding (where there is a Will) or administration proceeding (where there is no Will) needs to be commenced with the Surrogate’s Court. There are also instances where a formal court proceeding may not be necessary (which will be discussed later in this article) therefore, it is important for an Estate attorney to be consulted as soon as possible. If it is determined that a formal probate or administration proceeding may not be needed, this could save several months in the process.
If a formal probate or administration proceeding is required, it can take 60-90 days, and longer, to collect and prepare the necessary paperwork to be filed with the Surrogate’s Court in order to have an Executor or Administrator appointed. In most instances, until an Executor or Administrator is officially appointed by the Surrogate’s Court a cooperative apartment or real property may not be listed for sale.
Who Is Actually Authorized to Sell a Property When a Person Dies?
In New York, generally the law provides that upon the death of an individual, real property automatically passes to the devisees (i.e., those individuals specifically named in the Will) or distributees (i.e., those individuals who are heirs at law and where there is no Will) of the decedent. When a person passes away without a Will that person is said to have passed “intestate,” and where a person passes away with a Will that person is said to have passed “testate.” It is very important to determine whether or not there is a Will, or if a Trust exists, because this will dictate what process will need to be followed, what proceeding (if any) will need to be filed, who the authorized representatives are, and how quickly a sale could be contemplated.
Who Inherits When a Person Dies Intestate?
When a person dies intestate, that person’s property (both personal and real property) is distributed according to Section 4-1.1 of the Estate, Powers and Trusts Law (“EPTL”) (see https://bit.ly/3WTqK7b). Generally, if an individual passes away with a spouse and no children, the spouse will inherit all of the decedent’s real and personal property owned in the decedent’s name at the time of death (and not passing by a beneficiary designation or by operation of law). If the decedent had children but no spouse, then the children would inherit the decedent’s real and personal property.
If the decedent passes away intestate with a spouse and children, then the spouse would inherit the first $50,000 and 50% of the decedent’s remaining Estate with the child(ren) inheriting the remaining 50%. If a child dies before the decedent and that child had children, then the decedent’s grandchildren would inherit their deceased parent’s share, proportionately. If the decedent had no spouse or children at the time of death, then the decedent’s parents would inherit. Finally, if the decedent passed away with no spouse, children (or grandchildren), or parents, then the siblings of the decedent would inherit decedent’s Estate. The EPTL provides further elaboration on who inherits beyond the classes of individuals detailed above.
Who Is the Authorized Representative When a Person Dies Intestate?
If there is no Will, the “closest distributee” or “heir at law” may file an administration proceeding and apply for formal Letters of Administration, which would provide the Administrator with the legal authorization to represent the decedent’s Estate. According to the EPTL, the decedent’s spouse has priority over the decedent’s children to file the proceeding. However, if there is no spouse, then the decedent’s children would have equal rights to each other and would have to consent to have one individual, or more, appointed as the official Administrator(s) of the Estate.
If a spouse, child, or relative, as the case may be, with the priority right or equal right does not want to administer the Estate, then those individuals may sign a renunciation and waiver, which is filed with the Surrogate’s Court. This does not mean that they are giving up their share of the decedent’s Estate, they are simply consenting to the appointment of other individual(s) as Administrator(s) of the Estate (including signing listing agreements, contracts for the sale of real property and/or cooperative apartments, court documents, collecting assets, closing accounts, selling stocks, paying Estate expenses, etc.).
Who Becomes the Legal Owner of Real Property Or Cooperative Apartments Upon a Decedent’s Death?
One important thing to note is that even where an Administrator may be required to administer the Estate of a decedent, if there is real property involved, the law generally provides that the distributees (i.e., the heirs at law) become the owners, as tenants in common, of real property upon the death of an individual owner and title vests immediately in the distributees [see In re Fry’s Estate at https://bit.ly/3UQf8jp]. Therefore, generally, the distributees would be authorized to sell and transfer real property without having to file a formal administration proceeding. However, notwithstanding the above, it is always strongly recommended that the Estate attorney representing the Estate discuss whether or not an administration proceeding is required. If it is determined that an administration proceeding is not required, then all of the legal distributees (heirs) would be authorized and required to sign a listing agreement, and real property would be able to be sold fairly quickly. All of the distributees would be required to attend the closing and execute the deed transferring the real property to the purchasers.
However, with respect to the sale of a cooperative apartment, the above would not be true. Ownership in a cooperative apartment is represented by shares (evidenced by stock certificates) in a cooperative corporation and a lease (tenancy) interest in a proprietary lease. Under the law shares are considered personal property and, therefore, the automatic vesting component that exists in connection with real property, does not apply to shares in a cooperative corporation. In this instance, the legal distributee would be required to file an administration proceeding and must be formally appointed as Administrator before any listing agreement is entered into and prior to any sale or transfer of the apartment. Again, this means that it could take several months before the sale process actually begins.
Who is the Authorized Representative When a Person Dies Testate (With a Will) and There is No Specific Bequest of Real Property?
When a person passes away with a Will (i.e., testate), then the specific provisions of the Will of the decedent will apply and must be reviewed before any listing agreement is entered into or sale of real property is contemplated. If there is no specific bequest of real property to specifically named individuals contained in the Will, and the Will provides, generally, that the entire Estate (after payment of all expenses, liabilities, debts, etc.) is to be shared amongst the named devisees (this is known as the Residuary Estate), then the nominated executor will be required to commence a probate (rather than an administration) proceeding in order to administer the decedent’s Estate. It is recommended that the nominated Executor hire an Estate attorney so that a probate petition can be filed with the Surrogate’s Court in the county where the decedent’s primary residence was located as soon as possible.
Once the probate petition is approved and Letters Testamentary are issued by the Surrogate’s Court, the nominated Executor is officially appointed Executor of the Estate and the Estate administration process can formally begin. It is only at this point that an Executor would be authorized to sign a listing agreement and have real property or a cooperative apartment listed for sale.
What Happens When There is a Specific Bequest Of Real Property in A Will?
Generally, the law in New York State is that where real property is devised (given) to a specifically named individual (i.e., a devisee) in the Will, then title vests in the individual or individuals named in the Will at the moment of the decedent’s death (see Waxon Realty Corp. v. Rothchild at https://bit.ly/3Tx71Hw]. This, in most instances, would mean that the named individual(s) would become the owners of such specifically devised real property as tenants in common and that they would automatically have the authority to sell the property. However, this authority to sell would be subject to claims of creditors of the Estate.
Under Section 13-1.1(a) of the EPTL “[a]ll of the property of a decedent, and any income therefrom in the course of Estate administration, is chargeable with the payment of: (1) Administration and reasonable funeral expenses, debts of the decedent and any taxes for which the estate is liable.” While the specific devisees take title immediately upon the decedent’s death, they need to be informed that the executor has broad powers to take control of Estate assets in order to pay expenses, liabilities, and debts of the Estate. Again, it is important that the advice of Estate counsel is sought in order to confirm what will need to be done in order to be able to list the property for sale. In many instances, particularly where there are mortgages or debts involved, title companies will require that an executor be officially appointed so that they may provide insurable title to a prospective purchaser on a real estate transaction.
It is important to note that the above only applies to specific devises of real property. Where there is a specific devise of a cooperative apartment in a Will, a probate proceeding will be required to be commenced and an executor appointed in order to be able to sell the apartment. Again, the shares in a cooperative apartment are considered personal property and the immediate vesting that occurs with real property does not apply to shares or other personal property.
What if Real Property is Owned By a Company Owned by a Decedent?
Where a decedent owned shares in a corporation, limited liability or other entity at the time of decedent’s death, there are many issues that need to be addressed and carefully researched. Before any real property can be distributed or sold, an Executor or Administrator must be appointed. Even where real property is specifically devised in a Will, if the real property is owned by a company and the shares, stock, membership interest or other interest representing that ownership interest was owned by the decedent at the time of decedent’s death, those shares, stock, membership units, etc. are personal property and can only be transferred by a duly appointed Executor or Administrator.
Other important documents that will need to be reviewed are the shareholder’s agreement, operating agreement, partnership agreement or other form of ownership agreement. These documents may contain specific provisions as to how the transfer of ownership interests take place upon the death of an owner. It is important to note that the Estate will be bound by the terms contained in any such agreements. These agreements are usually very complex and will, in most instances, require the advice of counsel.
What if Real Property is Owned by the Decedent’s Trust?
When real property is owned by a Trust established by the decedent during the decedent’s lifetime, customarily the disposition of real or personal property (including the transfer of shares in a cooperative corporation) can take place immediately. A Trustee, under the terms of a Trust, is provided with broad powers, which customarily include the authorization to sell, lease, hold, maintain or dispose of all personal and real property. However, before any Trustee proceeds with the disposition of assets owned by the Trust, the terms of the Trust Agreement must be reviewed carefully. Trusts usually include many complex provisions and a Trustee, who is a fiduciary (as are real estate licensees), must strictly adhere to and implement the terms of the Trust Agreement.
The Complexities of Representing the Estate Client
When representing the representatives of an Estate, or the Trustees of a Trust, in connection with the sale of real property and cooperative apartments, there are a myriad of complex issues that exist and should not be taken lightly. It is essential that real estate licensees and real estate attorneys have a basic knowledge of these issues so they may be able to refer clients to experienced estate attorneys who can guide the clients, agents, and real estate attorneys through these complicated issues.