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What Does Probate Mean in Real Estate?

TLDR

What You Need To Know

  • Probate is a legal process that reviews a person’s will and determines how to distribute their assets, including the deceased person’s home
  • When a house goes into probate, it’s reviewed as part of a deceased person’s estate. Will or no will, probate usually determines how the estate is distributed
  • You can sell a probate property, but it usually takes longer than a traditional home sale

Contents

Many things must be taken care of after someone dies, including arranging a funeral, ordering death certificates and figuring out what to do with the deceased person’s possessions – including their real estate.

This process is known as probate.

If a will exists, disposing of real estate through probate largely depends on what the will says about the property. Sometimes homes are sold during probate to pay off debts or because the heirs want to sell them. In other cases, heirs may choose to keep the property.

If you’re not sure how probate in real estate might affect you, this article can provide some answers (though you should always consult a lawyer to deal with any specifics).

While probate can often feel complicated, especially if you’re in the middle of grieving a loss, knowing the basics of probate can help clear up a lot of potential confusion. 

What Happens During the Probate Process

Many states simplify probate by following the Uniform Probate Code. In some states, probate is simplified if the estate qualifies as a small estate (a small estate can also include real estate).

Probate with a will 

In general, the probate process follows a set of steps, which includes:

  • Determining whether a will exists and whether it’s authentic and valid
  • Notifying all heirs and creditors that the estate is in probate
  • Making an inventory of all estate assets
  • Paying the deceased person’s debts, bills and taxes
  • Distributing the proceeds of the estate
  • Closing the estate

While the probate court has to approve each step, the executor of the will takes the lead in getting things going. They ensure all outstanding debts are paid, they file final tax returns and take charge of the distribution of the assets.

Probate without a will  

When someone dies with no will, the process that follows is an intestate probate. State laws governing the distribution of assets take over. The probate court supervises how the estate is distributed to heirs. Whether the deceased was married or not may govern how their assets are distributed.

Depending on the size of the estate, the court might appoint a probate attorney (sometimes referred to as a probate referee) to handle the estate administration process.

If the estate has modest assets, probate may not be necessary. In some states, some assets pass automatically to heirs without probate. These assets typically include retirement accounts or joint bank accounts with named beneficiaries, life insurance proceeds and, in some cases, real estate that was jointly owned.

How long does probate take? 

Probate isn’t fast. It generally takes about 9 months, though, in some cases, it can take over a year. If you plan on selling a house through probate, be patient.

Certain factors can affect the length of probate, making it take longer than usual. These factors can include:

  • People contesting the will’s validity, bequests (aka gifts) in the will, or questions concerning the deceased’s state of mind when they created the will 
  • A large number of beneficiaries or heirs (which can increase the chance of disputes)
  • The distribution of business assets (which tend to be complicated)
  • An estate with estate taxes (which can add 6 – 8 months to the probate process because of IRS involvement)
  • No will
  • Unusual or complicated assets (such as partial ownership of property or a business)

Probate may take less time when modest estates are involved. In many cases, states offer simplified procedures for smaller estates, and the probate court may not have to get involved.

Probate in Real Estate, Explained

Real estate probate is a legal process that transfers property after the owner has died. While the probate process varies by state, probate courts oversee probate proceedings in all states, approving real estate sales and transfers. 

The probate process handles tricky situations that can occur after a homeowner dies. 

For instance, if several children inherit a parent’s house, they may have different ideas about what to do with it. One child may want the house while the others want to sell it. 

Usually, an executor (a family member or lawyer) is named to handle the distribution of the deceased person’s assets according to the will and the probate process. If there is no will, all assets are handled through a probate court, which will make the final decision.

Why does probate happen?

Probate provides a structure for the executor and other heirs to administer the estate according to the directions in the will and state law. Probate is designed to:

  • Honor the deceased person’s wishes: The executor and heirs can confirm the existence of a will and make sure the deceased person’s wishes are carried out. 
  • Make decisions if there’s no will: When someone dies without a will, state law governs how property is distributed among any heirs and beneficiaries. The probate court supervises the change of ownership and distribution of funds and property.
  • Pay outstanding debts: Probate typically involves paying off any debts and distributing all remaining assets.
  • Handle an existing mortgage: If there is mortgaged real estate, the property may be sold to pay off the mortgage, and the remaining assets are distributed according to the will. In some cases, the deed to any real estate will be transferred to the heirs or beneficiaries, who may take over the mortgage.

What does it mean when a property is in probate?

What happens to the home primarily depends on whether there’s a will and what the will instructs. Usually, one of three things will happen:

  • A will with designated heir(s): If there are instructions in the will to transfer the home to the deceased person’s heirs, the executor works with the probate court to transfer the property. The heirs can choose to keep the house or sell it.
  • A will with no designated heir(s): When the will doesn’t specify who should get the home, the executor must sell the property in probate. Typically, the executor teams up with a real estate agent who specializes in probate sales and puts the house on the market.
  • No will: If there is no will, the probate court judge must name an executor of the estate. The judge arranges for the property to be transferred to the next of kin following the state’s inheritance laws.

Why are homes sold through a probate court?

Homes are sold through probate court when someone dies without a will or when the will doesn’t specify what should be done with the home. Probate may also be required with complex estates.

Probate courts also ensure that the proceeds from a home sale are used to pay off any debts, including any mortgage balance and outstanding property taxes. Once all debts are paid off, the court distributes any remaining proceeds to the heirs according to state law. 

What happens when a home is sold through probate?

Probate law differs from state to state, but all states have probate courts that supervise the sale of properties during probate.

When a house is sold in probate, each step of the sale is supervised by a probate court. This adds to the complexity of selling a home in probate. All the personal belongings tied to the home are either sold in an estate sale or distributed to heirs and beneficiaries.

Probate sales can take longer to complete than standard real estate sales because the court must approve all steps of the sale.

Selling Probate Real Estate

Selling real estate that’s in probate is more complicated than a traditional home sale. By doing your research ahead of time, you can potentially reduce your exposure to many issues that may come up.

In a formal probate process, which typically takes more than 6 months, the court has to approve each step of the transaction. An appraisal is required before the property can go on the market, and probate courts typically require that the sale price is at least 90% of the appraised value.

The real estate agent handling the sale must advertise and list it as a probate sale. Once there’s an offer on the property, the probate court gets involved again. A hearing is held that allows buyers to make offers. The probate court supervises the bidding process, which follows strict rules. 

Once the court confirms the buyer, the executor can finalize the sale.

How do you sell outside of probate court?

Sometimes a probate court will allow an informal probate. 

In an informal probate, an executor sells a house without the involvement of a probate court or an attorney. There is no bidding, and as a result, the property may sell a lot faster. 

An informal probate may be used when the property was owned in joint tenancy with a right of survivorship. The property is considered community property and may be transferred to the surviving spouse without going through probate. 

Before someone dies, they can also transfer assets outside of probate to a beneficiary or heir named in a living trust. In this case, the executor isn’t involved in the transfer of assets. People planning their estates can transfer property, including real estate, as gifts – though this method may result in higher taxes. 

When in Doubt, Ask a Probate Pro

Probate can be complicated. And it can feel even more complicated during a difficult time. Work with professionals who understand the probate process inside and out and can help you navigate probate court and your state’s inheritance laws. 

ICYMI

In Case You Missed It

  1. After someone dies, their property, including real estate, typically goes through probate before it’s distributed to any heirs or beneficiaries

  2. Purchasing a property in probate can be complicated and often takes much longer than a standard real estate purchase

  3. Simple probate procedures are possible for real estate that’s in trust or jointly owned by spouses

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