We’re excited to present the latest in our series on the Melrose Title Company blog “Ask An Attorney.” This is a way for us to answer some of the more commonly asked questions and provide clarity and understanding for consumers. In this edition of “Ask An Attorney,” our own attorney Jessee Bundy addresses issues that arise with properties held in estate.
Buying and selling real property when the owner or owners are deceased can be tricky in Tennessee. Tennessee estate law is complex, and these transactions generally take more time and attention than a standard purchase or sale.
To ensure a smooth and successful closing, it is helpful for realtors, closing agents, and the parties to a transaction be familiar with the requirements and considerations involved when buying and selling real estate owned by an estate.
The first and critical step is to review the deed and other public records in the Register of Deeds office of the county in which the real property is located to determine the ownership of each parcel of real property and how title is vested. Then, and only then, can a reasoned and informed decision be made as to how to proceed.
When real estate is owned jointly by husband and wife, their ownership interest is considered a tenancy by the entirety, unless otherwise specified. Tenants by the entirety is the default way married persons own real estate and this type of ownership includes a right of survivorship. Upon the death of the first spouse, the other spouse automatically owns the whole property without the necessity to do anything further. The surviving spouse and tenant by the entirety has sole ownership interest and full power to convey or encumber the property.
Non-married persons who own real estate jointly are considered tenants in common. In this type of ownership, each person owns a fractional share of the property, and their interest can be passed to the person or persons specified by the deceased via will or, alternatively, inherited if the deceased has no will. Probate may be required in order to determine the proper new owner and how this fractional interest should be conveyed to a subsequent party. Married parties may also hold title as tenants in common if they so choose by clearly designating this type of ownership in the deed. Parties may also hold property as tenants in common with right of survivorship, in which ownership is considered an undivided joint interest and no probate process is necessary to pass the ownership of the deceased person to the surviving joint owner(s).
When all of the owners of a piece of property are deceased, several questions arise and a number of considerations come into play. These become very significant to the parties involved in a transaction of this nature, because they dictate how and when the property can be sold and by whom. A few major considerations are discussed below.
In Tennessee, real estate cannot be sold within 30 days of the decedent’s date of death. Additionally, it is ideal to wait until the period for creditor claims has passed. If probate has not been opened, property is subject to claims by creditors for up to one year from the deceased’s date of death. After one year, the opportunity for creditors to make claims expires, except for claims related to unpaid taxes and claims made by TennCare. If probate has been opened, claims against the estate must be filed with the probate court within four months from the date the probate court clerk first publishes what is referred to as a “Notice to Creditors.” This notice to creditors is required to be published for two consecutive weeks in a newspaper in the county where the probate court in which the probate action has been filed is located. If the creditor claims period has not run prior to the sale of real estate, a title insurance company will usually hold the proceeds from the sale in escrow until all debts, taxes and other estate obligations have been satisfied.
Regardless of whether or not the deceased had a will or if the estate has opened a file with the probate court, certain requirements must be met to have clear and marketable title and in order for a title insurance company to insure the property.
A TennCare release must almost always be obtained. When the Bureau of TennCare has paid out Medicaid benefits to the deceased during his or her lifetime, the federal government requires that each state attempt to recover these costs through a process called “estate recovery”. A TennCare claim may be satisfied by other assets held by the estate. However, when these assets are not sufficient, any real property owned by the deceased becomes subject to these claims, and often, the sale of the property is necessary to reimburse TennCare and satisfy a claim. Obtaining a TennCare release involves giving notice to the Bureau of TennCare, who will issue a release or notify the estate of any claims owed. Verifying that all TennCare debts are paid before the property is sold is extremely important, as these claims can be sizable and case law is unclear on when they expire. If left unpaid, claims attach as a lien on property and can become a problem for subsequent purchasers.
If the decedent’s date of death is before 2016, an inheritance tax waiver or release must also be obtained from the Tennessee Department of Revenue. Inheritance tax is imposed when the value of the decedent’s estate exceeds a certain exemption amount set for each year. The inheritance tax is paid out of the estate by the executor, administrator, or trustee. In recent years, the exemption amount has been set relatively high, and most estates have been exempt from paying any tax. The Tennessee legislature voted to abolish the tax beginning January 1, 2016. Therefore, if the deceased’s date of death is in 2016, the tax no longer applies and no inheritance tax waiver or release is required.
When buying and selling real property of someone who is deceased, you must determine who is authorized to do the following: 1) Hire a real estate agent and/or list the real estate for sale 2) Enter into a contract to sell the real estate 3) Close on the real estate, including who can execute a valid deed of conveyance and accept proceeds of the sale. This may be heirs or devisees of the deceased, the personal representative or executor, or a combination of the parties, depending on the circumstances. Sometimes, these actions require consent of the probate court. Other times, property is held in trust, which requires participation by a designated trustee.
A common misconception is that personal representative or executor of an estate has authority over the decedent’s real estate. However, more often than not, the personal representative or executor’s authority is very limited. Under Tennessee law, real property is not included in the probate estate and vests immediately in the heirs or devisees upon death of the owner, unless the will specifically directs for the real property to be administered through the estate and gives the executor the powers and authority to do so. This means that when a personal representative or executor is authorized to deal with real estate, it is the exception and not the rule.
Usually, the executor may direct and arrange for the reasonable, routine upkeep of real estate for several months after the decedent’s death. This includes payment of utilities, maintenance, lawn service and insurance premiums. This does not include mortgage payments, real estate taxes, major repairs or other extraordinary expenses. In Tennessee, the heirs or devisees are usually responsible for these items.
If the assets of the estate are insufficient to satisfy the debts and obligations of the deceased and the estate is insolvent, real property may be brought into the probate estate and sold in order to satisfy these debts. In this particular situation, the executor is granted authority and power over the real estate, subject to approval by the probate court.
T.C.A. § 31-2-103 provides in totality as follows:
The real property of an intestate decedent shall vest immediately upon death of the decedent in the heirs as provided in § 31-2-104. The real property of a testate decedent vests immediately upon death in the beneficiaries named in the will, unless the will contains a specific provision directing the real property to be administered as part of the estate subject to the control of the personal representative. Upon qualifying, the personal representative shall be vested with the personal property of the decedent for the purpose of first paying administration expenses, taxes, and funeral expenses and then for the payment of all other debts or obligations of the decedent as provided in § 30-2-317. If the decedent’s personal property is insufficient for the discharge or payment of a decedent’s obligations, the personal representative may utilize the decedent’s real property in accordance with title 30, chapter 2, part 4. After payment of debts and charges against the estate, the personal representative shall distribute the personal property of an intestate decedent to the decedent’s heirs as prescribed in § 31-2-104, and the property of a testate decedent to the distributees as prescribed in decedent’s will.
Because Tennessee’s laws related to real property and estates are intricate and apply differently to each specific situation, it is important to engage the help of qualified professionals when buying or selling property held in an estate. A knowledgeable title attorney and team of experienced title agents can prove invaluable in guiding parties step-by-step through the process and ensuring a transaction is done properly, efficiently, and to everyone’s satisfaction, so there are no unwelcome surprises or issues down the road.
Stay tuned for future discussions, in which I will explain the probate process in greater depth, describe some of the different considerations involved when the deceased has a will versus when they do not, and highlight special situations and alternative options available with respect to real property owned by a deceased person