What is Probate in Real Estate? 8 Things (2020) You Must Know

What is Probate in Real Estate? 8 Things (2020) You Must Know

If your loved one owned vacant land or an estate of great value, you may need to go through the probate process once they pass away.

The probate process will differ depending on the state, but it’s often the only legal way to become the owner of real estate.

Keep reading for more information about probate in real estate and how you can navigate it with these 8 things you must know.

1. Probate is a legal process

Probate occurs when a will is reviewed and determined to be valid and authentic.

This process also refers to the general administering of a deceased person’s will or the estate of a deceased person without a will.

When a will is present, there will usually be a designated executor, who is responsible for initiating probate.

If you are made an executor of someone’s will, here’s a quick snippet of how the probate process will go.

bulletYou’ll find a probate attorney.

They’ll represent you as you go through probate.

A probate attorney is your ally and will help you file documents with the court, collect money obtained from life insurance, solve issues with income taxes, and more.

bulletYou’ll then file a petition with the local court office.

This petition starts the probate process.

The court must be local to where the deceased lived.

If you currently live out of state (or even in a different city), then you’ll need to confirm with state laws that you’re able to lead the process.

All heirs and beneficiaries listed in the will must also be notified that the petitioning process is starting.

You must tell them the court date of the probate hearing so they can be present and raise any objections that they have.

Also, be aware that probate hearings are public record.

As a result, your hearing date will most likely be listed in the local newspaper so that anyone the deceased is indebted to can step forward.

You should also note that you will likely need to go through probate in the county where any property is located before you can sell the property.

bulletYou take inventory of the estate.

After you petition the local court office, you will need to go through the estate and take inventory of it.

This means you’ll gather all the important documents you need to move forward in the process.

While it will vary state to state, this includes:

  • Estate planning documents: will, burial and funeral arrangements, living will, power of attorney, advance medical directive
  • Assets: stocks, bonds, other properties, cars, deeds, life insurance, bank statements
  • Debt

bulletYou will notify creditors and pay legitimate claims.

Part of finding all of the documents and taking inventory of the estate is ensuring you report everything correctly.

This includes notifying known creditors (those the deceased owes money to).

You’ll want to identify all legitimate creditors like credit card companies.

Do this carefully since you’ll be paying out claims with the money from their estate.

bulletYou’ll manage income tax returns.

Did you know that you’ll need to file income tax returns for the deceased parties?

This includes paying any inheritance taxes due.

bulletYou’ll then have the assets transferred to the beneficiaries.

The final step in this process is when assets are legally transferred to beneficiaries.

This only takes place after bills and creditors are paid out of the estate.

Now that you understand a bit more about the process, you can be prepared as you go through it and know what to expect.

2. The length of probate depends on a variety of factors

Some of these factors are…

bulletThe presence of a will (as not everyone has one)

bulletThe state laws (everywhere is different)

bulletThe size of the estate (smaller estates take less time while larger estates take more time)

bulletThe number of taxes and debts to pay (more taxes and debts will take longer to settle)

bulletThe tax issues (any tax issues will hold up the process)

bulletThe number of heirs (as you need to notify all of the heirs before you start the process, it can take quite a bit of time to do this)

bulletAny contested issues of a will (you never know what issues may arise)

If you’re dealing with a small estate, the probate process can take as little as 6 months.

However, a typical probate process will often take up to 24 months (2 whole years!).

This means that you should not expect to have any real estate in your possession or ready to go on the market immediately after your loved one passes away.

The probate in real estate process is typically navigated slowly.

Don’t lose hope!

3. Surviving spouses are included in the probate process

Estate planning can quickly get complicated, especially when families have never handled this type of situation before.

In most cases, probate will only occur when there is not a surviving spouse.

This is because all of their assets will typically be held jointly with rights of survivorship between the spouses.

When the first spouse dies, the next spouse will obtain all the rights to the property.

Then, when the surviving spouse dies, there will be a probate proceeding required in order to pass the assets of the surviving spouse along to the heirs listed in the will.

However, there are exceptions to this rule.

If any property was acquired prior to marriage or as tenants in common, then it will not automatically pass to the surviving spouse and probate will be required.

4. The probate process is not always required

Because the probate process can require quite a bit of time to finalize, it’s often inconvenient.

It can also be expensive, which leads people to want to avoid it if possible.

This will always be a state by state determination.

Some states, like Texas, have a specified estate value that requires probate.

So, if the value of the estate is less than $75,000, then probate may be skipped.

This means that (assuming the estate is small enough) the process can be bypassed altogether.

Instead, the estate’s assets may be claimed using alternative legal actions (i.e. by filing an affidavit).

Additionally, if a deceased person’s debt exceeds their assets, then probate is not necessarily initiated either.

5. If the deceased does not have a will, then the sale of any real estate is sometimes supervised by the court

When a person dies without a will, they are said to have died “intestate.”

An intestate estate will typically go through the formal probate process, but there can be an important difference.

Without a will, the court will usually appoint an estate administrator to handle the process.

In some states, if the administrator is not appointed as an independent administrator, the court will sometimes supervise the sale and bidding process for the property.

This can be inconvenient and costly.

Furthermore, every state will have different rules, regulations, and practices for intestate sales.

However, the steps followed are generally the same.

The estate administrator will get a house inspection done and then will find a real estate agent to list, market, show, and sell the property.

As with everything in the probate process, the timeline varies.

Some states mandate that interstate real estate is sold within a certain number of days.

Other times, there may be a waiting period.

Check your local state laws to find out a more exact timeline for any interstate probate sales for deceased loved ones.

6. Probate can cost between 3 to 7 percent (or more!) of the total estate value

Did we mention that probate is expensive?

If you were named an heir to one of your loved one’s estates, you may be dreaming of how you’ll put that money or real estate to good use.

Yet, a probate process that drags on and on will only detract from the amount of money that eventually makes it into your bank account.

While there’s not a lot that you can do if you’re in the probate process already (as an heir), with some pre-planning, there are ways that you or your loved ones can help any future inheritors prior to your passing.

If you know that your estate will eventually go through this process, here are some steps you can take to eliminate unnecessary costs!

bulletTransfer property to a trust.

Revocable living trusts (also known as inter-vivo trusts) were specifically invented to help bypass the probate process.

The property that resides in this trust will NOT be probated.

It will pass directly to your inheritors.

All you have to do is create a simple trust document and then transfer the property title to the trust.

You can name yourself as the trustee to keep total control of the trust property until you pass.

Then, once you’re deceased, your property will be in the hands of whomever you name as your heirs.

Simple and cost-effective!

It just requires a little bit of foresight, which can be challenging depending on the circumstances.

bulletSet up transfer-on-death accounts.

These accounts allow you to name one or more beneficiaries to the account, and they also avoid the probate process.

What’s even better is that these accounts are typically simple and free to create, which means that the beneficiary can claim any money within them after the owner dies.

However, it should be noted that adding a beneficiary is an additional feature that you must add to the account.

While most banks, savings and loans, credit unions, and brokerage firms allow you to do this, it does require some paperwork and time, which means you need to follow through and ensure that you get this process done.

bulletUpdate your beneficiary designations.

Take another look at your life insurance policy, IRAs, 401(k)s, annuity contracts, retirement accounts, etc.

Anything that you have a beneficiary on will need to be updated before your passing.

Sometimes, individuals will forget to change their beneficiary after a divorce, a second marriage, or even their beneficiary’s passing.

These situations can get complicated, time-consuming, and expensive.

Since beneficiary designation will take precedence in court, you should make sure you have updated names listed.

You should also avoid naming your estate as the beneficiary because that will cause your property to go to probate.

bulletUse joint ownership.

Joint tenancy with the right of survivorship, tenancy by the entirety, and community property with the right of survivorship are the types of joint ownership that allow your property to bypass the probate in real estate process entirely.

Titling your property jointly means you’ll be giving up half of the ownership of the property.

When you pass, the property will automatically pass to the joint survivor (ex: a spouse) upon your death instead of going to probate.

bulletMake tax free gifts.

Giving a gift may help you avoid probate for a simple reason: you’ll no longer own the property in question when you die.

As of 2020, you can give your heirs up to $15,000 per person each year without a tax penalty.

Giving gifts to your heirs before you die helps to lower your probate costs.

Remember, the higher the monetary value of your assets going through probate the more it will cost overall.

Save everyone money and time by gifting it to them ahead of time.

7. Probate may be necessary if a deceased person is listed on the deed

Probate may come into play if a seller discloses that a deceased person is listed on the deed after a purchase agreement is signed.

In that case, a probate attorney would need to be consulted to begin the probate process.

They would be able to tell you whether the transaction can continue or if there will be minimal or significant delays.

Delays will ultimately depend on the type of property and if there are any creditors.

If you discover this is an issue during a sale, don’t be afraid to ask questions.

It’s always better to learn more about probate in real estate and protect your family’s assets and interests in the long-term.

8. It’s important to find the right advisor in the probate process

During the probate process, it’s essential to ask for experts’ help.

Probate is often long and exhausting, even if you’re not planning to sell the real estate that is being inherited.

When you find the right probate attorney, they can advise you on the laws specific to your state or city.

Allow professionals to help you in this time of need.

Final thoughts

Probate in real estate is a complex topic.

Probate proceedings typically focus on a will, and they can be complicated if a will does not exist at all.

Navigating the probate process is often time-consuming and expensive.

While there are some ways to shorten the process, they typically need to be instituted before an individual passes.

For more information on buying, selling, or investing in vacant land, check out our other resources below.

We’re here to help throughout the entire land buying and selling process!

If you are looking to buy affordable land, you can check out our Listings page.

Owner Financed Land

If you are interested in land investing, you can check out our article on How to Get Started in Land Investing.

land_investing_course

And if you are looking to sell land, visit our page on how to Sell Your Land.

If you are looking for Free Land, check out our free land giveaway.

Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

 

Leave a comment

TheTop

Sell your property