The personal representative of an estate (executor or administrator) has a legal duty to take custody and control of a decedent’s estate. He or she must identify the estate assets, protect the assets, value the assets, and then distribute the assets pursuant to the decedent’s last will and testament or Pennsylvania law. Assets include the decedent’s real property such as the decedent’s home, rental property or land. The purpose of this article is to identify some of the important steps a Personal Representative must consider for proper handling of real property in a decedent’s estate.
STEP ONE: LOCATE THE WILL
Friends or family of a deceased person should search for the decedent’s last will and testament. The will is a legal document that appoints an executor or executrix of the estate who is responsible for offering the will for probate and then administering the estate. The primary purpose of a will is for the decedent to state his or her intentions for the distribution of the estate assets upon death. If the will does not have any specific guidance for real property, then any real property owned by the decedent at the time of his or her death will pass to the beneficiaries named in the will to receive the residuary estate.
If the decedent dies without a will, it is called “intestate”. When a person dies intestate, the estate assets will pass to close family members as set forth in Pennsylvania’s intestacy law. When there is no will, the closest family member will become the administrator of the estate and he or she will have the same duties and responsibilities as a named executor or executrix in a will.
Executors and administrators are also referred to as the Personal Representatives of the estate.
STEP TWO: OBTAIN LETTERS TESTAMENTARY / LETTERS OF ADMINISTRATION
The first step for the Personal Representative is to appear before the Register of Wills in the county where the decedent last resided. If the decedent had a Will, then the Personal Representative should produce the original Will and request Letters Testamentary. If the decedent had no Will, then the Personal Representative will request Letters of Administration. When the Letters are issued, the Personal Representative has the legal capacity to administer the estate. After the Personal Representative is officially appointed, he or she must comply with probate and estate administration procedures as required under Pennsylvania law.
STEP THREE: UNDERSTANDING PERSONAL REPRESENTATIVE DUTIES
Pennsylvania law sets forth the following when it comes to probate and estate administration for real and personal property of an estate:
A personal representative shall have the right to and shall take possession of, maintain and administer all the real and personal estate of the decedent, except real estate occupied at the time of death by an heir or devisee with the consent of the decedent. He shall collect the rents and income from each asset in his possession until it is sold or distributed, and, during the administration of the estate, shall have the right to maintain any action with respect to it and shall make all reasonable expenditures necessary to preserve it. The court may direct the personal representative to take possession of, administer and maintain real estate so occupied by an heir or a devisee if this is necessary to protect the rights of claimants or other parties. Nothing in this section shall affect the personal representative’s power to sell real estate occupied by an heir or devisee. (Section 3311a of the PEF Code).
STEP FOUR: IDENTIFY THE REAL PROPERTY
The Personal Representative must identify the real property in the decedent’s estate. If the decedent is a close friend or family member, it might be easy to identify the real property that the decedent owned at the time of his or her death simply by searching through the decedent’s home and safe deposit box for copies of deeds and real estate tax records. The Personal Representative should also contact the decedent’s accountant and obtain a copy of the latest tax return to determine whether the decedent claimed any mortgage interest deductions or received rental payments. If so, then the real property will be identified on the tax return. The decedent’s insurance broker will likely have insurance information on any real property of the decedent. A search of the County Recorder of Deeds is another option to locate real property owned by the decedent. Often, the Recorder of Deeds will have an online public access system with a searchable database for parcels, owner name, and address. In addition to the Recorder of Deeds, each county has a real estate tax department. County real estate tax departments also have searchable databases for real estate tax information that can reveal owners of real property. The Personal Representative can also to go to the post office and have the mail forwarded from the decedent’s home to the Personal Representative’s home. The postal service might deliver documents such as real estate tax bills or insurance information that would also reveal real property owned by the decedent.
STEP FIVE: PROTECT AND PRESERVE THE REAL PROPERTY
The personal representative must maintain appropriate insurance coverage for real property (liability, fire, etc.). Since it is the personal representative’s duty to “make all reasonable expenditures necessary to preserve” real property, the personal representative can be personally liable for losses not covered by insurance. If insurance coverage already exists, then the personal representative should determine whether the current insurance coverage is sufficient. Other ways the personal representative can preserve and protect real estate would include installing a home security system, changing the locks, and arranging for services such as lawn maintenance and snow removal, especially when local ordinances require it. Notifying local law enforcement that the home is vacant is advised. In cold months, the property should be winterized. Newspaper delivery should be canceled, and the mail should be forwarded to the personal representative’s home. The mortgage and taxes should also be paid. Usually, the expenses for mortgage payment and taxes are borne by the estate, unless the property is specifically devised in which case, the devisee should be responsible. Failure to pay the mortgage or taxes could result in a foreclosure action. If the decedent had pets at the home, the personal representative should review the decedent’s will for provisions regarding the pets. If there are no specific provisions, then the personal representative must find homes for the pets. Often, a close friend or relative will take the pets. Local shelters and pet adoption services can help.
STEP SIX: VALUE THE REAL PROPERTY
Proper estate administration requires the personal representative to value any real property for purposes of filing an inventory of the decedent’s probate estate with the Register of Wills, filing the Pennsylvania inheritance tax return, accounting to the beneficiaries, and, if necessary, filing federal and state fiduciary tax returns. Valuing real property may include a formal appraisal by a certified real estate appraiser. For real property, it may be possible to obtain valuations in a manner other than obtaining an appraisal. For example, some local tax assessments are reflective of the true fair market value of the real property. If the assessment has been updated recently and if the basis of the assessment is the comparable sale price of similar properties, the personal representative may be justified in relying on that value.
STEP SEVEN: DETERMINE WHETHER TO SELL THE PROPERTY
Selling the real property is often done through a real estate agent or other traditional methods. The seller is the name of the estate and the personal representative is the legal representative who has the authority to sign the documents necessary to effectuate the transaction including the agreement of sale and the deed on behalf of the estate. If the real property is sold in an arm’s length transaction to a third party soon after the decedent’s death, then the sale price could be used for valuation purposes if the sale price reflects the true value. Any sale of real property to a related party, such as the personal representative or a beneficiary, should not be completed without approval from all the beneficiaries or, if necessary, approval from the Orphan’s Court. If improvements to the real property are required before the house is put on the market, then the improvements can be paid from the estate so long as the will does not provide for a specific devise. The personal representative should keep all receipts and invoices for any improvements that can later be used for tax purposes.
STEP EIGHT: CONTENTS OF THE REAL PROPERTY
Any tangible personal property discovered in the decedent’s home or other property is part of the decedent’s estate. As such, the Personal Representative should inventory any property that has value. For smaller estates, the Personal Representative, with the help of family members can organize the property and declutter, if necessary. For larger estates with valuable personal property, it might be necessary to hire a reputable estate sale expert or auction team to do an estate sale. Estate sales are common when the value of the personal property justifies the time and expense of having the sale.
STEP NINE: PAYMENT OF TAXES
The personal representative must make sure that all taxes related to the sale of real property, such as the Pennsylvania realty transfer tax is paid. The transfer tax is usually paid at closing of the sale. The personal representative must also calculate and pay the Pennsylvania inheritance tax. The inheritance tax will apply to real property owned by the decedent in Pennsylvania along with other estate assets. Fiduciary tax returns are sometimes necessary, but not always.
CONSIDER HIRING AN ESTATE ADMINISTRATION ATTORNEY
It is important that personal representatives attend to these matters promptly. If the real estate asset is wasted, destroyed or ruined and the personal representative could have prevented it with reasonable protection, the personal representative may be financially responsible for the loss out of his or her own pocket. Personal liability is a serious matter and personal representatives are encouraged to retain an experienced probate and estate administration lawyer for advice and guidance.
The Martin Law Firm is in Blue Bell, PA, in the heart of Montgomery County. We handle estate planning, probate and estate administration matters in Montgomery County and the surrounding counties. If you are a personal representative of an estate and you want assistance, please feel free to contact us to discuss your situation. We offer a free case evaluation. Call us today at 215-646-3980.