By Blake W. Kirkpatrick
So you found that perfect little gem of a house or perhaps vacant lot on which to build your next one? The seller (a great grandchild) has told you that “this house/property has been in the family for years.” This statement be a subtle warning. The next question you ask should be “who truly owns this property?” The answer could be that the property is still technically titled in great grandma’s name, and she, and all her children are deceased!
Multiple listing service (MLS), Zillow®, Trulia®, other real estate search engines and/or even the local County property appraiser websites do not necessarily list the real current owner.
In Southwest Florida, where we have many retirees, etc., it is not uncommon for property to be sold by an estate or trust, or, even the beneficiaries directly. Some of those parties presume that title passed to them automatically without any action, etc. While this does not necessarily mean that the buyer of such property will never be able to acquire clear title to property owned by an estate/trust/beneficiary, it does mean that additional steps may be necessary before the property can pass free of title issues. These steps can have the effect of delaying the ultimate closing of the sale.
As a buyer, you may not learn that the property you are purchasing may have probate/trust administration and/or tax-related title issues until well after the contract has been signed. Again, not to worry, because these title issues can be cleared, though some may be more difficult than others. A little patience will go a long way and perhaps result in your ownership of the home or property of your dreams.
As a seller, many of these title issues can be avoided early on by recognizing that certain steps may need to be taken to confirm that you can pass good title to a prospective buyer.
Before addressing these, it may be helpful to cover a few misconceptions or problems that can arise in the probate/trust administration context when dealing with real estate:
. Surprise Effect of Prior Conveyance Provisions in Deeds – It is not uncommon for joint owners to misunderstand how they hold title based on the conveyance language in the prior deed (e.g., they thought they owned joint with right of survivorship, but instead they own as tenants in common). Furthermore, changes in facts and circumstances subsequent to the prior purchase or transfer of the property, can arise that, if not addressed, will leave unintended consequences. Examples of this are when property has been inherited, property is transferred among family members via quitclaim deeds without the assistance of counsel, or when property was previously owned by a married couple who are now divorced.
. Lack of Authority of Executors of Probate Estates Outside of Florida – A misconception of many executors and personal representatives who have been appointed in a northern state/jurisdiction outside of Florida is that the authority granted to them by the northern state automatically gives them authority to transfer, sell, lease, etc., Florida real property. Unfortunately, it does not and either the Florida real property will need to be properly administered through a Florida probate proceeding wherein the personal representative/executor is granted authority by a Florida probate court (i.e., Ancillary Letters of Administration) or, for smaller estates or estates of decedents who died more than two years ago, the Florida court issues an Order which has the effect of conveying property to the heirs or admitting a foreign proceeding to record.
. Tax Liens and FIRPTA – Upon the death of the property owner, federal estate tax liens will need to be cleared before the property is sold or otherwise transferred. If the deceased owner did not have a taxable estate, a simple nontax affidavit can be recorded on or before closing. If the deceased owner had a taxable estate and was required to file a federal estate tax return, the process for obtaining a federal estate tax lien release can be much lengthier. This does not necessarily prevent you from closing on the sale; however, it may be necessary to hold closing proceeds in escrow until the estate tax lien has been cleared and all federal estate taxes have been paid, if required. Further, there are certain withholding requirements under the Foreign Investors in Real Property Tax Act of 1980 (FIRPTA) when property is being sold by a foreign owner/estate. Technically, the FIRPTA withholding requirement is an obligation of the buyer. Nevertheless, either the buyer should ensure that withholding occurs and/or the seller provides a withholding certificate from the Internal Revenue Service on or before closing.
. Homestead – While an entire article can be written separately about this issue, suffice it to say that primary residences in Florida (homestead) may have devise restrictions at death, etc., depending on whether the decedent was survived by his spouse and/or minor children. In other words, in the context of an estate/trust administration, other heirs or beneficiaries may have an interest in the homestead property and without their approval, clear title cannot be conveyed.
Steps to consider if you are a listing agent of estate or inherited property:
. Ask the person who is listing the property with you to show evidence or proof that they have actual title and authority to sell the property.
. After the above, or in lieu of, confirm on your own who has legal title on the property (again, the county property appraiser’s website does not always indicate who the legal title holder is).
. If the property is being sold from an estate/trust or beneficiary thereof, suggest that the seller consult with legal counsel (early in the process) to make sure that the seller has taken the necessary steps to convey clear title.
. Manage expectations of the buyer and seller and clearly communicate timing in conjunction with counsel that is handling the estate/trust administration.
Steps to consider if you’re a prospective buyer of estate or inherited property:
. Ask questions about the owner and how title is currently held.
. Before signing the contract, make sure that the seller listed on the contract is the proper party.
. Recognize and understand that closing can be impacted or delayed by probate, creditor claims, tax liens, etc., but that those title issues can be cleared with the assistance of legal counsel, and, perhaps delays minimized if counsel is consulted early in the process.
. Hire legal counsel to make sure your interests are protected and that all title issues have been properly addressed.
Steps to consider if you are the seller of estate or inherited property:
. #1 – Do not wait until you have a signed contract or listing agreement before consulting with legal counsel regarding the estate administration and tax issues.
. Review the deed or transfer document wherein you or the decedent acquired title to the property. If you have any questions regarding how such property is titled, ask legal counsel and attempt to clear up any issues stemming from the prior conveyance.
. Many of the title issues related to probate and estate tax will be identified in a title commitment letter. Make sure that the title underwriter issues title commitment letter as soon as possible after the contract has been signed.
Blake W. Kirkpatrick
Blake W. Kirkpatrick is a Florida Bar Board Certified Wills, Trust & Estates attorney with the law firm of Salvatori, Wood, Buckel, Carmichael and Lottes. Blake’s practice is concentrated in the areas of estate and tax planning, charitable planning, business succession planning, and estate and trust administration.
239.552.4100 | www.swbcl.com
This Article does not constitute legal advice and may not be relied upon as such. Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.