Single Asset Probate
It is not uncommon for a client to come to our office and inquire about probating a parent’s estate. After a brief inquiry with the deceased parent’s child or children, there emerges a decision as to whether to probate the estate or simply let mom and dad’s estate go un-probated. Such decisions usually hinge on whether the only asset in the estate is the parent’s homestead which is encumbered with a mortgage. Once the client learns that he or she will be responsible for the upkeep and management of the homestead, there is a sudden realization that it may not make sense to probate the estate. This article explains some of the reasons why you might want to open up a dialog with your attorney prior to probating your parent’s estate.
When you begin probating an estate, the court will appoint a personal representative to marshal and distribute the estate’s assets. Generally speaking, the personal representative is charged as a fiduciary to manage the property, prevent waste, liquidate the assets and distribute said assets to the beneficiaries. The problem for the personal representative begins when the only asset in the estate is mom and dad’s mortgaged homestead. Remember that the personal representative is responsible for the homestead which includes keeping the mortgage paid, the yard maintained and the taxes and insurance paid. But if mom and dad did not leave any cash (e.g. savings account) to pay the mortgage, yard maintenance, insurance or taxes, that burden will fall upon the personal representative during the probate process which could last 7 months or more. Although the personal representative can file a lien against the property for those sums he or she expended in maintaining the homestead property, it is of little solace when selling mom and dad’s homestead property will not pay off the mortgage or reimburse you for your expenses.
It is well recognized that upon the death of the parent, the homestead property inures to the heirs of the estate. In most cases the heirs are the children of the decedent. As a result, you could argue that the heirs are all equally responsible for the maintenance, upkeep and expenses of the homestead property. However, actual title does not pass until a court of law has determined that the property meets the criteria as homestead property and issues an order stating to whom the property passes. Until the court issues its order determining homestead status, the burden of preparing and maintaining the property for sale will rest upon the personal representative. Typical expenses that a personal representative may encounter during the probate process include: 1) mortgage payment; 2) utilities (water, electric, gas); 3) yard and plant trimming maintenance; 4) painting; 5) removal of furniture; and, 6) cleaning out those stacks of magazines that have been lying around for 10+ years. The major burden usually is the continuous payment of the mortgage, utilities and yard maintenance which can easily become a huge albatross over a 7 month period. This is especially true when there is the realization that you may never be able to recoup those expenses and you’re the only one paying.
You may be wondering if you can sell the property during the probate process. The answer is yes, but, as everyone knows, the selling of real property today is the exception and not the rule. It is not uncommon for property to sit for six months or more before getting sold (and that is if you are lucky).
If the property is underwater, you may also be wondering if the personal representative can simply walk away from the property and let it foreclose. Unfortunately, it is not that simple because the personal representative is a fiduciary charged with managing the property, preventing waste and distributing the assets to the beneficiaries of the estate. There is the real possibility that walking away from the property may be viewed as wasting the estates assets and thus a breach of ones duty. If this occurs, the personal representative may become personally liable for mismanagement of the property if the property is foreclosed.
You are now likely wondering who would institute such breach of fiduciary duty. In many cases it is the beneficiaries who in the beginning of the probate process were cooperative and now distain each other because what was thought to be a gold mine turns out to be nothing more than an empty shaft.
It is recommended that you take the time to meet with a probate attorney prior to opening up a probate to learn the risks that you are about to encounter as personal representative. Be sure and bring to your initial meeting all of the known assets and encumbrances that the estate possesses. Your attorney may suggest that the best alternative is to file the decedent’s Will (if any) and not probate the estate until the homestead property is foreclosed. By not probating the estate there is no personal representative and thus no fiduciary duty can be attached to you if a foreclosure should occur. If by some magical happening the property is sold on the courthouse steps for more than the principal balance of the mortgage plus costs and fees of the foreclosure process, the surplus funds will be made available to the estate.
As you can see, the decision to probate or not to probate your parents estate may not be as clear cut as you think. If you are not sure what to do, take the time to meet with an attorney who deals in probate. Bring to the initial consultation meeting what you think are the estates assets and encumbrances and have a heart-to-heart talk about the risk of probating your parent’s estate. It may be the best investment you could make.