Here is a common fact scenario in a smaller estate: the decedent’s solely-owned personal property, which includes intangible assets such as bank accounts and investments, is valued in total at less than $100,000. However, his or her residence, which is owned in the decedent’s sole name, is worth $150,000. Must the decedent’s estate be probated? Not necessarily.
Through the attorney and title insurer, the residence may be sold without a probate estate being opened if:
1. An Affidavit of Heirship clearly identifies the decedent’s heirs and each of those heirs is willing to sign the deed;
2. Those receiving a share of the net sale proceeds (whether as heirs if the decent died without a Will, or as beneficiaries under the Will) are willing to provide the title company with his or her Social Security Number for his or her share of the gross sale price to be provided to the IRS by a Form 1099S;
3. The recipients of the sale proceeds provide the title insurer with an indemnification agreement, referred to as a Personal Undertaking, that they will pay any claims and protect the title insurer from any claims filed against the decedent’s estate. To assume such liability, the heirs and devisees (those receiving under the Will) should be familiar with the decedent’s estate and satisfied that there are not any large outstanding debts owed. We can generally provide proof that the funeral and burial/grave marker and final medical expenses have been paid.
In the situation where all heirs are receiving a share of the sale proceeds, this procedure avoids the cost and time-delay of a probate proceeding. It may not work if the beneficiaries under the decedent’s Will do not include all of his heirs. In that case, an heir must sign a deed even though he or she is not receiving any portion of the sale proceeds. The heir who is not receiving any proceeds may request a fee to sign the deed. Then, the signors would want to weigh the fee being requested verses the cost of a probate proceeding.
The key to avoiding probate in this scenario is that all heirs and devisees under the Will must sign the deed. Included among the heirs may be descendants of a deceased child or sibling. They will all need to be located.
The reason a title company will require indemnification from those receiving the net sale proceeds is that the claim period is not cut off within six months as is the case under a probate proceeding. Instead, a probate proceeding could be opened by a creditor within two years of the decedent’s death and a claim filed thereunder. Since the title insurer is guarantying the purchaser and very likely its lender over any claims filed against an estate which could still be opened in probate, it will require protection from the “sellers” that they will satisfy the claim. As attorneys, we will need to satisfy the title company that the persons signing the Personal Undertaking are financially responsible.
As I suggested, this procedure may not work if an heir is not included under the decedent’s Will. It also may not work if the named Executor under a Will desires to control the sale of the property, rather than requiring the consent of several interested parties.
However, I have used this process many times and seen it save administration expenses for the smaller estate.