When a person dies, he leaves his property—called his “Estate”—behind to be distributed to certain people. Who those people are depends on various circumstances. Did the decedent have a spouse? Did he have a last will and testament? Did he die without a Will, or intestate? Different people may inherit his Estate based upon the answers to those questions.
But one question that people rarely ask is, What if the people who inherit the decedent’s Estate don’t want the property? Before you think, Who wouldn’t want property, realize that there may be various reasons why someone would not want the decedent’s property. For instance, assume that Mr. Smith dies owning a house and little else. There is a mortgage on his house and the fair market value of the house appears to be $150,000.
At first blush, you would think there is no reason why someone would not want this property. It’s worth $150,000 after all. But let’s assume that the property is encumbered with a mortgage that has an outstanding balance of $80,000. Mr. Smith died owing back property taxes totaling $20,000 to the town in which his home is located. Worse yet, his house is heated by oil and the oil tank leaked, requiring the Estate to clean up the oil spill before title to the property can be transferred.
The property has a gross value of $150,000, but when you deduct the mortgage, the back taxes, and the inevitable realtor commission, there is little equity. Then throw in the oil spill remediation and there may not be any equity at all.
If you were nominated as the executor of this Estate in the last will and testament of Mr. Smith and were aware of these facts would you want to assume the responsibility of the executor by submitting Mr. Smith’s Will to probate? I have to tell you that I’d think twice about it if I were the executor.
Once you assume the responsibility of the executor by submitting the last will of Mr. Smith to probate, you are responsible to care for the property of the decedent. In this case, though, the property may have no equity value. In fact, the oil spill remediation issue is a completely unknown liability. The clean-up might cost $10,000 or it might cost $100,000, which would eclipse the equity value of the entire estate given the debt that encumbers the property.
Say after the executor submits Mr. Smith’s Will to probate and after he learns about the oil contamination, the executor asks the beneficiaries if they would be willing to permit him to transfer title to the property to you, instead of selling it. The law actually favors what are called “in-kind distributions.” In other words, the law favors the executor simply transferring title to Mr. Smith’s home to the beneficiaries of the Estate instead of selling the house.
While most executors do end up selling the house because few beneficiaries want to own a house with a group of other people, the executor could simply transfer title to the house to the beneficiaries and be done with his job. If you were a beneficiary would you want to take title to Mr. Smith’s house?
Probably not because you’d be taking title to the liability associated with the oil spill remediation. As stated, the cost of the remediation might eclipse the value of the house. By taking title to the house, you could be taking title to a debt.
In this case, it would actually be better if no one ever submitted Mr. Smith’s Will to probate and if no beneficiary of his Estate ever took title to his property. On the face of it, it seemed as if Mr. Smith owned a $150,000 and that the beneficiaries of his Estate would be receiving an inheritance of some amount, but on further examination, it would be better to not accept this property.