The Estate with Investment Properties

What could be better than inheriting an estate with real estate holdings? Look around any area of this city — that’s how many of the most prominent real estate empires were built. But it’s not all wealth and power for the heirs. There can be a lot of issues to deal with.

Real estate assets are big assets, which is great. But it also means that the estate is likely to be subject to estate taxes. The exemptions from estate tax have risen dramatically in recent years, so that only the truly wealthy have to pay estate tax — but appreciated properties are just the kind of asset that can push the estate over the threshold. This is a real challenge, because estate taxes are payable nine months after the death, in cash. An estate rich with property is often poor in cash, so the executor and heirs have to be really attentive to the issue. A delay in probating the will or appraising the properties can lead to costly tax penalties. And a nominated executor who incurs such penalties may be personally liable, since it’s a failure of fiduciary duty to fulfill the estate’s obligations and preserve its assets.

There’s also the problem that some heirs may wish to continue owning the property while others wish to receive their share in cash. If a will does not provide for assets to be liquidated, then all heirs technically become co-owners of the properties. But it’s also an executor’s duty to reduce all assets to cash, and any co-owner of property is always legally entitled to force a sale and liquidate their share. The executor can sell enough property to provide cash to some and buildings to others, as long as the values are carefully determined, the transaction costs accounted for, and all parties’ consent obtained at every step of the way.

Property passing through the family will also pass to multiple owners who do not all have the same level of interest or acumen for the business. One brother is a bully, one is a softie, one keeps good records, the other does deals on a handshake. The fortunes of all of these parties are tied up in the others, so serious legal and financial attention is required.

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