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05/26/09: Death Do Us Part – From The House

Housing Counsel

By Benny L. Kass

Q: My dad is 94 years old and very ill. I am his executor and want to handle his wishes correctly upon his death. Dad’s will states that his property is to be divided between his wife (of 10 years), my two sisters and me. His wife has told us she does not wish to remain in their house after he dies. (The house is in his name only). She wants to move into an apartment or condo where there is no upkeep but seems worried about how soon she will have to move after dad dies. I have told her we would never force her out on the street but would give her plenty of time to find a place to live. She has asked me what the law has to say about how long she will be allowed to stay in this house.

A: Whoa! Hold on there. You are ignoring a very basic fact: when your dad dies, your step-mother will be a part-owner with you and your two sisters. It is not clear from your question whether she will own half of the house or just one quarter, but either way, she will have an ownership interest in the house and will have the right (in conjunction with her co-owners) to determine when (or whether) she has to leave the house.

According to current probate law, when your dad dies, you will apply to the probate court in the jurisdiction where he died for permission to be the Personal Representative (PR) of his estate. This is also referred to as the “executor” of the estate.

Once you are appointed PR, technically and legally, you will be the owner of the property, but you must follow the terms and conditions of your dad’s Last Will and Testament. You will have to get an appraisal of the house, since the value of the property on the date of his death is very important for tax purposes.

There is a concept in law called the “stepped-up” basis. This means that for calculating capital gains tax should the property be sold, the law determines the basis of the property as of the date of death.

Let’s take this example. Your dad purchased the property many years ago for $100,000, but on the day he died, it was assessed at $500,000. If you (and the other owners) sell the property for that amount, no capital gains tax has to be paid.

Your step-mother does not want to live in the property. What do you and your sisters want? If no one wants to live in the house, then you should put it on the market – keeping in mind that this is not the best time to sell because of the current economic situation. However, if you decide to hang on to the house for a little while, you (and the other owners) will have to pay real estate taxes and keep the insurance current.

You could decide to rent out the house, but then you all will be landlords, subject to the local landlord-tenant laws in your jurisdiction.

There is no law governing when (or even whether) your step-mother will have to move out. As a part-owner, she has the same rights as the rest of you. So that decision must be made by a vote of all the owners.

This means that you have to read your father’s Will carefully. Did he give half of the house to his wife or only one-quarter. It is an important distinction, and will not only govern the timing of when your step-mother moves out, but will also determine how the sales proceeds will be distributed.

You should talk with (and retain) local counsel to assist you and guide you through the Probate process. It’s not difficult, but there are a number of legal procedures and requirements that must be followed. As the Personal Representative, you have a legal and fiduciary duty to follow the rules.

You should also keep in mind that in addition to the house, your father may have had many other assets – such as a car, furniture, stocks and bonds and checking accounts. You will have to determine if he had any pension plans and any insurance policies. All of the assets and all of the liabilities must be pulled together so that you – and the Court and the IRS – will have a clear picture of his net worth as of the date of death.

– Boilerplate –