Transferring Real Estate After Death
When Will The Probate Court Be Involved?
How you can transfer real estate in the estate to the new owner depends on how title was held by the deceased.
If the estate you’re dealing with contains real estate, it’s probably the most valuable single asset in the estate and surviving family members are going to be extremely interested in what happens to it. If more than one person inherits it, there are many opportunities for conflict. But first, let’s look at how the property can be transferred to its new owners.
As a reminder, when there is not will and no trust and/or if the deceased only had a will , the probate court will determine a decedent's estate value and who will be the beneficiaries of the estate. The probate court will also appoint an executor who will be in charge of the estate distribution.
Below is a recap, for informational purposes only, of when the probate court will be involved when a person died without a Trust.
1. When Will Probate Be Necessary?
First, find the deed that transferred the property to the deceased owner. The deed should state how the deceased person, and any co-owners, held title to the property. That will determine how the property can be transferred.
If the property was owned in the deceased person’s name alone, it will probably have to go through probate to be transferred to whomever inherits it. Who inherits is determined by the person’s will or, if there is no will, by state law. Probate is necessary.
If the deed says title was held in joint tenancy or joint tenancy “with right of survivorship,” then the surviving co-owner is now automatically the sole owner of the property. No probate will be necessary to transfer ownership, though the new owner will need to complete some paperwork to make it clear that the property is now solely owned. No probate is necessary.
In community property states like California, spouses can hold property in community property, meaning that it’s owned by the couple together. The deed may also say that they owned the real estate “as husband and wife”; that also shows an intent to hold the real estate as community property. In community property states, spouses are free to leave their half-interest in community property to whomever they choose; generally, if they don’t name a different beneficiary, it passes to the surviving spouse. No probate is necessary.
Community property with right of survivorship
Community property states like California offer the option of holding property this way. When the first spouse dies, it gives the survivor automatic ownership of the property. No probate is necessary.
Tenancy in common
Co-owners seldom own real estate as tenants in common, but you might come across this form of ownership if the co-owners inherited the land - for example, they were siblings who inherited a house from their parents - or were in business together. Each co-owner can name a beneficiary in his or her will; if there’s no will, the deceased co-owner’s interest in the property passes under state law to the closest relatives. Probate will be necessary to transfer the interest in the property.
On July 23, 2021, Governor Newsom signed into law Assembly Bill 633 which enacts the Uniform Partition of Heirs Property Act, AKA the Act, which is meant to enhance opportunities for intergenerational wealth accumulation and transfer to the heirs of a deceased person who, as mentioned above, did not have a will, a trust or any other method of conveying a property at the time of his/her death.
Currently, if several heirs jointly inherited a property and there was no will, trust or other method of conveying the property at the time of the owner’s death, the property is passed down to the heirs through an "intestate transfer”. This means that each heir receives a fractional interest in the undivided property.
This type of ownership, known as tenancy in common, is highly volatile because a tenant in common who wishes to sell his/her ownership stake, could petition the court to request a partition action in order to force sale of the property.
Unfortunately, over the years, some real estate speculators and developers have taken advantage of some of these tenants in common by acquiring a small share of a property at below market price and then forced the sale of the entire property in order to purchase it under the fair market value price.
The aim of the Act is to prevent these abuses and put a break on further loss of inherited real property wealth through forced sale practices. In other words, AB 633 aims to modernize the current partition law and implement a fair process, under court supervision, for “ tenants in common” heirs during a partition sale.
As a result, among other things, the new bill:
1). Enacts the Uniform Partition of Heirs Property.
2). Establishes that the Act will apply to actions to partition a real property that are filed on or after January 1, 2023.
3). Defines "heirs property" to mean real property that meets all of the following conditions if a natural person dies intestate and a relative inherits their interest in real property – provided that the property a) is held in tenancy in common. b) Its partition is not governed by an agreement that binds all of the cotenants. c) One or more of the cotenants acquired title in the property from a relative, whether living or deceased. d) At least one of the following conditions applies: i) Twenty percent or more of the interests in the property are held by cotenants who are relatives. ii)Twenty percent or more of the interests in the property are held by an individual who acquired title from a relative, whether living or deceased. iii) Twenty percent or more of the cotenants are relatives.
4). Requires, in any action to partition real property, that the court first determines whether the property is heirs property. If it is heirs property, the real property must be partitioned under the Act, unless all of the cotenants agree otherwise.
5). Defines "determination of value" to mean a court order that establishes the fair market value of heirs property, using the Act's procedures. If the court orders an appraisal, the court shall appoint a disinterested real estate appraiser licensed in this state to determine the fair market value of the property.
6). Requires a court, once a determination of value is completed, to notify the cotenants that any of them (except those cotenants who requested the partition by sale) may buy the interests of the cotenants who requested partition by sale. In other words, provide an opportunity
for all cotenants, other than the cotenants requesting sale, to purchase the
interests of the cotenants requesting sale, at the established appraised price.
7) Order in kind partition if no buyout. Absent
such a purchase, the court must order partition by kind unless the court finds
that such a partition would cause "great prejudice" to the cotenants
as a group. "Great prejudice" is statutorily defined to require an
examination of the totality of the factors and circumstances involved,
including how long the property has been held by the cotenant and prior owners,
and a cotenant's attachment to the land.
Please note, that even under the terms of the Act, a property whose value
lay primarily in its improvements would ordinarily go to an open-market sale,
rather than partition in kind.
9) Order open market sale. If the court does not order partition in kind due to a finding
of "great prejudice" to the co-tenants as a group, the court shall
order partition by open-market sale, unless sealed bids in an auction would be
more economically advantageous. Or, if no cotenant requested partition by sale,
the court shall dismiss the action.
10) Appointment of broker. If
the court orders an open-market sale and the parties, not later than 10 days
after the entry of the order, agree on a real estate broker licensed in the
State of California to offer the property for sale, the court shall appoint the
broker and establish a reasonable commission.
If the parties do not agree on a broker, the court shall appoint a
disinterested real estate broker licensed in the State of California to offer
the property for sale and shall establish a reasonable commission. The broker
shall offer the property for sale in a commercially reasonable manner at a
price no lower than the determination of value and on the terms and conditions
established by the court.
Any purchase entitled to a share of the proceeds is entitled to
a credit against the price.
The above information is given for informational purposes only. To understand how the new Uniform Partition of Heirs Property Act might impact your personal situation, please consult an attorney.
2. Revocable Transfer on death deed
The California transfer on death deed (RTOD deed), allows a property to be automatically transferred to a designated new owner when the current owner dies without the need to go through probate. It also gives the current owner retained control over the property, including the right to change his or her mind about the transfer.
SB 315 extends
until January 1, 2032 the revocable transfer on death deed (RTOD deed) law
which allows a homeowner to transfer to a named beneficiary 1-4 residential
property upon the owner's death without a probate proceeding.
Two witnesses are
now required to sign the deed. Stock cooperatives are excluded from the types
of property that may be transferred via RTODD but agricultural land with up to
four residential dwelling units are now included.
1) This law
applies to: Residential one to four properties, condominium units and single
tract agricultural land (40 acres or less) improved with a residential 1 to 4
dwellings. The stock cooperatives are excluded.
2) The RTOD deed must be signed, dated and acknowledged
before a notary public, and must be recorded within 60 days after execution.
3) The law may void a RTOD deed if, at the time of the
owner's death, the property is titled in joint tenancy or as community property
with right of survivorship. The law also establishes a process for contesting
the transfer of real property by a RTOD deed.
SB 315 is effective January 1, 2022.But the changes in SB 315 do not apply to RTOD deeds or
revocations that were signed before January 1, 2022.
you would like to learn more about what to do when selling an inherited property, watch this video and let me know if you have any questions:
Source: Estateplansf.com / Realtor.com