Transferring Property from an Estate
A client came in last week asking me to represent her in selling a single-family in south Brooklyn. She said her and her mother own the house 50/50, and her mother died intestate (without a will) last year. This means that, since the daughter and mother owned the home as tenants in common (TIC) and not as joints tenants with right of survivorship (JTWROS), that the mother's equal half of ownership passes through the New York intestacy law to her direct heirs.
Similar scenarios pop up all the time, and the devil truly is in the details. prompting the question that can have many different answers:
What happens to real estate when the owner dies?
Was there a will?
There are those transfers where the decedent had a will in place and those where the decedent died intestate. If there was a will, then the Surrogate's Court in the county where the decedent had his/her primary residence must (1) determine that the will was valid and "in full force and effect" at the time of death, and if it was, then (2) issue Letters Testamentary to the named executor under the will. The Letters Testamentary authorize the executor to carry out the terms of the will (which usually includes either the power to sell off the decedent’s real property or transfer it according to a specific bequest).
If the closing must take place before the Surrogate's Court finishes its probate proceeding and issues Letters Testamentary, the real estate attorney can request Preliminary Letters Testamentary (which are fully effective and sufficient to transfer real property so long as they specifically authorize the executor to transfer real property of the estate).
At closing, the title company will need to verify that a number of things are in place before issuing a title insurance policy to the grantee/buyer: (1) the Letters Testamentary are in full force and effect, (2) an original Certificate of Letters Testamentary is provided, which contains the raised seal of the court and is less than 6 months old as of the closing date, and (3) an Executor's Deed is used to transfer the property from either the executor or the divisee named in the will to the grantee/buyer.
If there was no will...
When a person dies without leaving a intestate, that person's property is distributed according to the law. In New York, that law is found in EPTL 4-1.1.
Here, the court can (1) appoint an administrator to administer the estate, (2) determine the legal heirs, and (3) issue Letters of Administration granting the administrator authority to take various actions related to the estate (which usually includes the power to sell off the decedent’s real property).
Additional steps must be taken before a title company will issue title insurance to the grantee/buyer at the closing. Still, just as if there was a will, there must be valid Letters Testamentary, an original Certificate of Letters Testamentary from the court, and an Administrator's Deed (instead of an Executor's Deed) transferring the property to the grantee/buyer.
If the decedent died intestate and there was no administrative proceeding, a title company may still provide a title insurance policy to the grantee/buyer. Here, the real estate attorneys and the title company determine who the decedent's heirs at law are (instead of a court). Once they have identified all of the heirs, those heirs can convey the property to a third-party via a deed transfer. The title company will require certain affidavits to be executed by the heirs inducing the title company to provide title insurance to the grantee/buyer.
Of course, in every transfer of real property, from an estate or otherwise, a title company will not issue title insurance unless, and until, all liens on the property are removed or satisfied. The sale of property from an estate is no different in this regard, and the heirs will need to satisfy or remove any liens that affect the premises.
Federal and New York State estate taxes absolutely must be considered whenever estate property is transferred. Both the IRS and New York State levy a tax on estates based upon the net value of the taxable estate. They also both exempt estates from having to pay any taxes if the value of the estate is under a certain dollar amount. These exemption amounts change year-to-year (in 2016, it's $5.45 for federal and $4.1875 for NYS) - it's best to check current information directly from NYS and IRS.
The estate tax itself is a lien against all of the real property of the estate and attaches as soon as the decedent dies (even if the dollar amount of the lien is unknown at the time of the decedent’s death, the lien is still in full force and effect against the real property).
At closing, the title company will require proof that either (1) all necessary estate taxes are paid, or (2) that no taxes are due. Such proof is generally referred to as a release of lien or estate tax waiver. Delivery of the state and federal releases to the title company will allow it to remove the estate tax liens from Schedule B of the title report and to insure title to the purchaser.
If the value of an estate is less than the IRS and NYS exemption amounts, a title company will usually waive the requirement for the release/waivers and instead accept some other documentation or proof that no taxes are due. In most cases, title companies will accept an affidavit from the executor or administrator stating that the estate is exempt from taxes.