Essential tips for executors: Selling a loved one's home during estate administration

Dealing with the loss of a loved one can be a challenging experience for family members, but especially for those responsible for settling the estate, including disposing of the loved one's personal property and home. A discussion of estate planning can be filled with unfamiliar terms. It's important to know that the person who has passed away is commonly referred to as the decedent.

While handling an estate may be time-consuming, the process can be even more complicated if there's real estate involved. Data from the ongoing Health and Retirement Study indicate that disposing of the decedent's home usually leads to the longest settlement process, whether the estate is subject to probate or not.

There are numerous reasons why disposing of a loved one's home can be difficult.

• It can seem almost sacrilegious to even think about selling the home where parents or loved ones created so many memories.
• The home may be chock-full of stuff that brings back mixed emotions when sorting through it.
• Family members may not be on the same page as to what to do with the home or may not be available to pitch in with the effort.
• The market for selling a home may not be optimal.
• The home may be tied to debt from a first or second mortgage, home equity line of credit or reverse mortgage.

Although the process can seem overwhelming, with a little bit of planning and a lot of consideration for family dynamics during this period of loss, you can successfully navigate this journey.

Tips to help guide you through the process

1. Determine legal ownership.

As you begin estate administration, you'll most likely need original death certificates, so it's a good idea to have plenty on hand.

Before you begin the process of selling the home or transferring ownership of it, you'll need to establish how the property was legally owned and the terms of transfer upon death. This can get complicated, so you may need the help of a lawyer.

Generally, you'll need to determine if the home was owned individually, jointly with someone else who may or may not be living, or by a trust or some other type of entity. How the property was legally owned and how and to whom it passes at death may be determined by carefully examining documents like the will, trust deed or local tax authority records.

If a trust is the legal owner of the home and you're the successor trustee, then you'll be responsible for determining what to do with the property.

Likewise, if the will states that the home is to pass to your loved one's heirs at death and you're appointed by the probate court as the executor, then you'll be responsible for selling the home or transferring ownership to the heirs.

For this article, we'll assume there's not a surviving spouse or partner to take over the property legally and physically and that the home passed to the estate either with or without a will, leaving it up to you as the executor to manage the sale or transfer.

Tip: Recently, about 30 states have adopted transfer-on-death, or TOD, deeds — also known as beneficiary deeds — as a way for real estate to pass outside of probate.

Usually, a TOD deed would be filed in the local county clerk's office. If you can't locate a copy of the deed among the deceased person's belongings, then check with the appropriate county clerk for more information.

Find out more about transferring property after death with Trust & Will.

2. Communicate with family.

As an executor, you may have a lot on your plate at this time. Family members may be asking you questions, and other interested parties may be making offers to buy the home.

At this time, and before you have all the information in place, it's important to communicate with family members to let them know you are on top of things, and welcome their input, but to understand that selling the family home can take time.

Tip: Keep in mind that it's not your fault if a sibling complains that they need their share of the sale proceeds pronto, whether to pay off debts or to fund some new purchase. There usually isn't much you can do to speed up the process.

3. Understand your responsibilities.

Whether or not the estate is subject to probate, as the executor you're usually responsible to serve in a fiduciary capacity. This means that you must serve the best interests of those you represent as you manage the estate settlement process. This may mean you represent not only yourself but also the heirs and the creditors of the estate.

4. Secure the property.

While your loved one was still alive, various people may have had access to the home. Upon their death, you may not want these people to be able to freely come and go, especially if there are valuables that'll need to kept safe for future distribution.

Tip: It might be enough to simply collect any keys to the home that may have been distributed, but you may want to go further and change the locks and security codes to prevent unwanted access.

For example, the brother-in-law who helped deliver the new refrigerator may think he's entitled to it since everyone else in the family has new appliances. But the big box store that financed the purchase may be a valid creditor that you technically also represent as the executor.

5. Assign responsibilities.

Who'll be responsible for the various tasks involved in cleaning out the home and prepping it for sale? Where will the funds come from if repairs are needed? How will the sale proceeds — or loss, depending on the market — be split among the beneficiaries? In addition, who'll make the final decisions about the sale?

Tip: Although you as the executor may have the legal authority to make all decisions, it may be a good idea to communicate how you will make these decisions to the rest of the family.

6. File for transfer of ownership.

The deceased's will, trust and state succession law determine how ownership of the property is transferred after a death. It may be necessary to file for a new property deed either with or without probate court supervision depending on the individual state laws. Contact your local county clerk's office and consult with your legal counsel to determine the best course of action.

7. Prep the home for sale.

This can be two-fold process. You'll need to eventually remove or transfer items, such as furniture, artwork, and other items to heirs. But before the sale, you may want to keep items in place to make the home more presentable to would-be buyers. Nevertheless, it's a good idea to give the home a good cleaning and fix the obvious and simple repairs without spending too much.

Tip: If there's a lot of stuff cluttering the home and making it look less appealing, then consider renting a storage unit and sorting through these belongings later. You could also consider holding an estate sale to get rid of unwanted items.

8. Choose the right real estate agent.

For these situations, the right real estate agent should not only have the prerequisite experience, but also be sensitive to family dynamics during times of grief. You may receive comments from other family members that you should try to sell the home yourself and save the family the agent's commission.

Although the thought of saving money may be tempting, consider the time, effort, and expertise required. Unless there is an obvious buyer with a simple transaction, think twice before trying to DIY.

Tip: Have a list of questions ready before you interview prospective real estate agents. Ask how they plan to market the home and who'll be responsible for marketing costs and staging. In addition, you may want to perform a title search to make sure the home or property isn't encumbered by any claims – valid or not.

9. Be prepared for emotional challenges.

In many cases you're selling not just a house but a home full of memories and nostalgia.

Family members can become very emotional as the reality of the sale sinks in. It may not be uncommon for some family members to suggest that the house be kept for posterity or rented instead of selling it.

These alternatives may or may not be viable, so it's important to do some math to evaluate whether keeping the property or renting it could make financial sense — and don't forget to factor in the cost -- both financial and emotional, of managing these options. For example, paying yearly property taxes and acting as landlord if issues arise with renters.

10. Keep the property in good shape.

It can be difficult to maintain the property while trying to sell it, especially if you, or other family members, don't live in the area. It's important to have a maintenance plan or agreement with your real estate agent to make sure the property is kept in good shape. If you're trying to sell without a real estate agent, you'll need to hire someone to do this work for you.

11. Keep communicating with family members.

The old saying "No news is good news" may not apply to situations like this. If family doesn't hear from you, they may think that you're not doing enough. To avoid this, you may need to find a way to keep everyone involved updated on the status of the home's pending sale.

Tip: Create a distribution list for text or email where you can notify folks about what's going on, without having to field multiple individual conversations.

12. Carefully consider offers.

It's important to evaluate incoming offers in terms of how the offer aligns with the best interests of the estate. Things to consider can include offer price, financing terms, any contingencies, and timeline for closing.

For example, the next-door neighbor may say, "Oh, I know my daughter would love your parent's house, can you give us time to get our financing together before you accept any other offers?" Although you may want to be accommodating, keep in mind that you represent others in what is really a business transaction.

Tip: Be courteous to all potential buyers but remain professionally firm in your approach. In other words, don't agree to a bad deal just because of personal relationships. Remember, your job as executor is to get the best deal for the estate, while considering multiple factors.

13. Understand potential taxes.

Since real estate can often represent a very large dollar value, the sale of the home may trigger various taxes. Given the current high threshold for federal estate taxes, this may not be a problem.

But 17 states currently have either a state estate tax, or state inheritance tax, and one state imposes both. That means that it's important to work with qualified tax and legal experts, especially with larger estates.

Tip: If the home is sold to a family member, the IRS may view this as a "controlled" transaction versus "arm's length," especially if the family member received a discount on the sales price. If that's the case, be aware that the difference between the sales price and the market value may need to be reported to the IRS as a gift.

14. What if there is a mortgage, loan, or reverse mortgage?

Real estate property or a home with outstanding debt against it can add another layer of complexity to the executor's duties during estate administration or probate.

Remember, that as the executor of the estate you're typically responsible for using the assets from the estate to pay off creditors. In some cases, there may be enough cash or other securities that could be used to pay off any existing debt on the home.

But that may not always be feasible, so it's important to know your options when there are outstanding loans and not enough ready cash to pay them off.

Although the steps mentioned so far remain valid, here are a few more tips to consider for property with outstanding debt.

15. Review documents pertaining to the debt obligation.

You should be able to locate statements that show the lender's name and contact information, the outstanding balance, the interest rate, and any penalties or prepayment clauses.

16. Contact the lender.

Get in touch with the lender as soon as possible to let them know about the owner's passing.

The lender should be able to provide guidance on your options and requirements regarding loan continuance, loan payoff, temporary loan forbearance transferring the loan to the estate.

In addition, whether a home is part of the estate or not, you may be required to follow a court mandated process for notifying any potential heirs and or creditors. Your local probate court and legal counsel may offer more guidance.

When the deceased homeowner was also the borrower for a reverse mortgage, the process can be a bit trickier. As the executor you should contact the lender of the reverse mortgage immediately to review your options, as well as the information provided by the Federal Housing Authority – FHA, for Home Equity Conversion Mortgages – HECM.^{See note1}

Tip: Occasionally, children or heirs may be unaware that their loved one had a reverse mortgage. Many seniors can be tempted by late-night TV commercials offering access to extra money via reverse mortgages.

As such, seniors may not view the reverse mortgage debt obligation as a true debt against the home and may not make other loved ones aware due to this misunderstanding or even embarrassment.

17. Coordinate with beneficiaries interested in the property.

Although beneficiaries may be interested in keeping the home, they'll need to understand all the ramifications of either assuming the loan, if possible, or arranging their own financing.

18. Sell the home and pay off the mortgage or debt and distribute the proceeds.

After the sale of the home and the debt is paid, you, as the executor, should make sure that no further liens exist against the estate, and the proceeds from the sale or disposition of the home can be made to heirs, depending on any other pending liabilities that need to be paid off.

19. File tax returns.

Depending on how the property passes to the heirs, you may need to file a federal tax return for the estate – IRS Form 041 — or a state tax return. Even if the sale of the home generates a capital gain, this may not equate to tax being owed. Consider working with a qualified tax or legal professional to help you with any tax returns. For more information on taxes for survivors, estate executors and administrators, see IRS Publication 559.^{See note1}

20. Keep good records.

The IRS generally requires you to keep income tax returns for three years, but there are certain restrictions. For more information on tax records, see the IRS website.^{See note1}

Tip: It can be a good idea to keep some documents longer, such as records relating to any repairs, improvements, maintenance or sale of the home. You never know when a curious family member may ask about some of the expenses involved in the disposition of the home.

Where to go for help

Active-duty service members and their dependents as well as retired or disabled service members and their dependents may be eligible to take advantage of no-cost legal assistance. Commonly known as JAG, this service can include estate planning. To find a general legal services provider within the continental United States, visit the U.S. Armed Forces Legal Assistance Locator.^{See note1}

For more education or to find a local attorney who specializes in estate planning, visit the American College of Trust and Estate Counsel.^{See note1}