Closing Thoughts by Jim Young
Sponsored by Andrews & Young, PC
October 17, 2014
HOME SOURCE www.theday.com
Something even lawyers sometimes forget: A trust cannot own real property. Title to real property in a trust is vested in the trustees of the trust. Similarly, the estate of a deceased person cannot own real property.
One often hears these days how everyone should have a revocable living trust, by which you “avoid probate”. Such a trust can be a very useful thing for many persons, but the benefits do not always outweigh the additional cost and complexity of such a plan. While a properly funded and maintained trust can substantially simplify administration upon death, even with such a trust one may need to go to the probate court for certain things, and to the surprise of many, the fee payable to the probate court will generally be the same if you have a living trust or not.
Occasionally I hear a question such as, “My husband died last year and we owned our home jointly with rights of survivorship. I was told his interest in our home passed automatically to me at his death because of how the deed was worded. I’m selling our home now and have a closing next week, but there seems to be a problem as I’m being told we can’t close unless I get some document from the probate court. I’m stressed out. If I own the home, why do I have to do that?”
I like this question because it lets me use the word “inchoate,” which in Latin is roughly the same as “unformed.” A long time ago, at St. Joseph’s High School for Boys, Brother Phelan of the Marist Brothers tried to teach us Latin, with little success. It used to be that dropping a Latin word into a conversation was one of the ways we lawyers let clients know how smart we are, but sadly the use of Latin has been dwindling for some years now. But I digress.
The widow asking the question above may indeed own the entire property, but the title will be unmarketable. She will need to go to probate court, and this would be the case even if her husband owned the property in a revocable living trust, because the state of Connecticut has an inchoate or unrecorded lien on his real property to secure the payment of any estate taxes that may be due as a result of her husband’s death. This lien means an informed buyer won’t close, until the issue is addressed.
The defect is cured once the appropriate certificate is obtained from the probate court and is filed in the land records. To get this document, the widow will need to file an estate tax return for her deceased husband (a CT 706 or CT NT 706 form – the “NT” indicating the estate is not of a magnitude to which estate tax attaches in Connecticut), and a form PC – 205 (Petition for Certificate Releasing Connecticut Estate Tax Lien). If all is in good order after payment of the probate court fee, the judge will issue a certificate releasing the state’s lien, and the closing can go forward. (Sometimes the closing attorneys can arrange for the closing to occur without the release, if all the sales proceeds are held in escrow pending the recording of the release, but even if possible this results in additional stress and complication in an already stressful situation.)
The intersection of real estate law and probate law can be interesting and sometimes complicated, depending on the facts of each case.
Let’s say your wealthy Aunt Veronica died and left you, her favorite niece or nephew, her grand estate on the water in Groton Long Point, “Shangri-La,” which includes rental property. What are your rights and interests in Shangri-La after her death? What are the rights and interests of the executor of your aunt’s estate?
As any lawyer would likely say in response to this question: it depends. Did Martha leave debts that can only be paid if Shangri-La is liquidated? Are there personal property assets with which to pay the debts of the estate and expenses of administration? What powers have been granted to the executor in the will? Has the property in question been expressly and specifically left to you, or left as part of the residuary of her estate? Or, as an old professor of mine used to joke, did the decedent leave the property to “the hairs of my body,” as he once found in an estate he was familiar with.
Generally, the estate of a decedent is not a legal entity and the executor, as the administrator of the estate, is the person in whom title vests on the death of the decedent as to all personal property. But this person has no personal interest in the assets and holds title solely as the administrator for the deceased.
Things are different for real property. If Aunt Veronica had died without a will, then her heirs at law would at her death have title to Shangri-La. Who the heirs at law are would need to be determined by the probate court before their title can be marketable.
However, since dear old Veronica specifically said you are to inherit Shangri-La, title vests in you at her death or, as some would say, upon the admission of her will. You are a “specific devisee.” That said, for your title to be marketable, generally speaking, the probate court must issue a certificate of devise, which would be recorded in the land records.
The interests of an heir at law, or a specific devisee in real estate, may be sold by them, or mortgaged, or—possibly more practically—attached by their creditors, even while the probate of Veronica is ongoing, and before court findings as to identity of the heirs, or admitted any Will. hat said, the interest of any buyer, attaching creditor, or lender in such an interest is subject to being cut off by a sale of the property by the executor. So, except under unusual circumstances, these rights may be of little value.
Now, a will may give an executor the power to sell real estate; and if the real estate is passing as part of the residue, generally no order needs to be obtained from the probate court for the sale to occur. But, if a property has been specifically devised, then before selling such property the executor generally needs to demonstrate to the court that it is necessary to do so. This action may be taken to pay taxes—or debts of the estate, or costs of administration—because there are no other funds or assets with which to pay such obligations. So even the special interest of a specific devisee is subject to being cut off, and is therefore unmarketable pending issuance of a certificate of devise.
If you have inherited the property as a specific devisee, you may be able to cause the net income of the property after Veronica’s death to be accounted for and ultimately distributed to you, together with the real property concerned. Of course, the flip side of this coin may be more difficult to address: what if the property loses money?