Can an executer sell property to himself? In theory, yes but there are a few variables such as state law and intestacy.
While it’s a slippery slope, to say the least, there are certain circumstances under which it may not be wrong to purchase the property in an estate yourself for multiple different reasons.
However, to understand why an executor might want to buy property from an estate they’re managing, and under what possible circumstances that could still count towards the executor’s fiduciary duties, we need to understand what kind of people get chosen to become executors, and what exactly executors are meant to be doing during the probate process.
What is an Executor’s Job?
An executor represents a decedent’s estate during probate. They tend to be older or more responsible beneficiaries, a close loved one or surviving spouse, a good friend, or the decedent’s lawyer.
When a person dies, their belongings and assets must be distributed among the living. Everything that constitutes a deceased person’s (decedent’s) belongings and assets are summarily called their estate. But the family can’t simply split their loved one’s estate however they please.
Summarizing the Probate Process
The probate process formally begins after one of the decedent’s family members or attorneys submits a formal petition for probate utilizing the decedent’s death certificate within the days and weeks following their loved one’s passing.
Some people decide to leave behind documents that explain what they want to be done with their estate after they die. It is up to the probate court to formally recognize these documents and grant a member of the family, close friend, or legal representative the powers to command and manage the estate to dissolve it between the living.
This is the position of the executor or the representative of the estate. Among other things, an executor must:
- Take stock of the estate and manage each asset.
- Notify and speak with creditors.
- Handle the final financial obligations of the decedent via the estate.
- Communicate the decedent’s wishes to beneficiaries.
- And finally, distribute the contents of the estate as per the decedent’s final will and testament.
If no will exists, then the executor must distribute the estate as per state law. A state’s intestacy succession determines this or the order and degree people inherit after death.
How are Executors Compensated?
Probate ends once a decedent’s estate is fully distributed. Depending on the size of the estate and other factors, this can take just a few months or upwards of a year. Executors are compensated, as are probate attorneys, up to a maximum as per state law. In California, this maximum compensation is calculated additively as:
- Four percent of the first $100,000 of the estate.
- Three percent of the next $100,000 of the estate.
- Two percent of the next $800,000 of the estate.
- One percent of the next $9,000,000 of the estate.
- 0.5 percent of the next $15,000,000 of the estate.
The probate court will determine the compensation for executors and probate attorneys involved in estates totaling more than $25,000,000. These fees may be changed in special circumstances or if an estate is deemed especially complicated.
To revisit the original question – no, an executor may not sell the property to themselves as compensation. There are legitimate reasons why an executor might want to buy property from the estate during the probate process.
An executor who also happens to be one of the estate’s beneficiaries may have a direct interest in the home. They can buy the property at fair market value with approval from the other beneficiaries.
The end result is that the equivalent value of the property will be replaced by cash in the estate, which can more easily be split between the heirs of the estate. In cases with no will, where the estate must be split evenly as per state law, liquidating property can help make the math much easier.
What an executor cannot do is buy the property for less than its fair market value. This would explicitly go against their fiduciary duty, as they would effectively take value out of the estate for themselves rather than selling property to themselves in exchange for the equivalent amount of money. It is also embezzlement.
An executor may also quickly get into hot water if they decide to sell the property to themselves for no good reason without consulting the other beneficiaries. Even if the executor isn’t a beneficiary of the estate themselves, they can still offer the other heirs – but simply selling the home to themselves could be grounds for very costly probate litigation.
Suppose the executor finds it to be in the best interests of the beneficiaries to sell the property. In that case, they can petition the court to make an official decision on the idea.
Communicating with the Beneficiaries
Communication with the heirs of an estate is crucial. Executors do not have any property rights or ownership rights over an estate.
They do not have the final say on what happens to property within the estate, and what they have is the right to manage the property, including selling it.
But if doing so infringes or harms an executor’s fiduciaries or interests, they may have broken their fiduciary duty. That being said, selling property without the explicit consent of the beneficiaries isn’t illegal either. But it can make things more complicated than they have to be.
If you are an executor to the estate, it helps to remember that there is great value in talking things through. Consider the best course of action. Consult the heirs. Be aware of the decedent’s will and wishes or state law. If you want to buy a home from the estate, gain consent and be sure to make an offer that constitutes fair market value. It might not be easy – but it’s possible.
Being Better Prepared for Probate
Many unnecessary complications during the probate process can be mitigated or completely avoided via careful estate planning.
Estate planning can be summarized as all actions taken pre-emptively to simplify the management and distribution of assets after death and prepare contingencies for both death and near-death scenarios. It doesn’t stop at writing a will – you can further finetune your estate plan via long-term living trusts, by granting powers of attorney to your spouse or partner, and more. Now you are informed ont he question of “can an executor sell property to himself”.