One of the most overlooked but important reasons for young people to have a basic estate plan is if their main asset is their home. Particularly for young couples with young children at home, the house is generally the largest asset. Almost uniformly, that largest asset is encumbered by a mortgage. If something were to happen to you and your spouse and you didn't have a simple estate plan in place, the person in charge of your estate would likely be forced to sell the home to pay the debts of your estate. While this may not seem like a problem at first glance, if you don't have a last will and testament that specifically authorizes your executor to sell your real property to pay off your debts, your estate will likely have to institute a land sale proceeding in probate court.
A land sale proceeding is a lawsuit filed by the person in charge of your estate, asking for the probate court to order a sale of your home. It is much like a foreclosure action in that all of the interested parties in the real estate, i.e. the mortgage company, any other lien holders, and the beneficiaries of your estate are included as defendants in the lawsuit. Typically, the house gets appraised and is ordered for sale at a price not less than the appraised value. However, in circumstances where the house is not worth what is owed on the mortgage, which is more common these days with the real estate market being as it is, oftentimes the mortgage company itself will challenge the sale of the house because they will be "shorted" the amount owed to them after real estate commissions, taxes, attorney’s fees, and costs. This process does not fit well into the mortgage companies’ procedures, and often becomes an administrative headache for all involved. These land sale proceedings take many months in most cases, and potential buyers have to be willing to endure an extended, court-overseen contract period.
The simplest way to avoid the waste of land sale proceeding is to conduct basic estate planning. A last will and testament which explicitly authorizes your executor to sell real property to pay debts, or a transfer on death designation on the real estate could adequately protect your estate from being forced through such an arduous lawsuit. As part of a basic estate plan, avoiding the complexity and the cost of probate is easy and very often overlooked. Along with the surrogate decision making obtained from executing financial powers of attorney, health care powers of attorney, and healthcare declarations, a basic estate plan offers the most protection for the least amount of trouble.
- Posted by Attorney David S. Banas