In my previous posting, I introduced the “immediate vesting” rule that the ownership of real estate transfers automatically and immediately to the beneficiaries[1] when the original owner passes away. After reading the posting, a real estate broker friend of mine asked me, “What about estate sales[2]?”

To paraphrase my friend, the question is:

“If the ownership of the home of a deceased person has been transferred to the beneficiaries, how come the estate has the authority to sell the home in an estate sale?”

This question relates to the practical implications of the immediate vesting rule, specifically with respect to the administration of the estate.[3] Therefore, I thought it a good opportunity to follow up with my previous posting and address my friend’s question regarding estate sales.

Who has authority to sell in estate sales?

In the first level of thinking, under the immediate vesting rule, since the ownership transfers immediately to the beneficiaries after the original owner passes away, the beneficiaries become the new owners and therefore have the authority to sell the home. As a result, for many estate sales, it is (or should be) the beneficiaries that are listing the property for sale, not the estate.

However, the estate (via the executor or administrator) may also have the authority to sell the home, notwithstanding the ownership by the beneficiaries, under certain circumstances, such as to pay the estate administrative expenses and/or debts, or to make distributions to the beneficiaries.[4] As one court opined, “While it is true that title to an estate’s real property vests in beneficiaries at the moment of a testator’s death, their title is qualified and subject to the executor’s power to sell the property to satisfy the debts and obligations of the estate.”[5]

Therefore, practically speaking, both the beneficiaries and the fiduciary (i.e., the executor or administrator) may have the power to sell the home in an estate sale.[6] Moreover, this means that beneficiaries may not be able to sell the home until after the estate administration has been settled and the fiduciary has consented to the sale.[7]

It is noted that many estate sales in NYC involve a cooperative apartment, which is not a real property (but is, rather, shares of the cooperative corporation and thus a personal property). Therefore, the estate (via the fiduciary) has the sole power to conduct the estate sale before the estate is settled and the shares of the coop apartment is distributed to the beneficiaries.

Thus, the simple answer to my friend’s question is: Either the beneficiaries or the estate (via the fiduciary) may conduct an estate sale, although the beneficiaries legally may need the consent of the fiduciary to sell.

Dual powers – A struggle by courts to adapt to practical needs

NY’s current legal framework for the inheritance of real estate results in dual powers over the disposition of real property in an estate. – One held by the beneficiaries arising from the immediate vesting rule, and the other held by the fiduciary arising from the statutory and common law authorities to administer the estate. The separation line between these dual powers, however, may not be clear, leaving the courts to struggle to draw the line.

For example, the courts have cited EPTL[8] 11-1.1(b)(5) as giving the fiduciary broad authority to sell real property without a court order.[9] EPTL 11-1.1(b)(5) provides (in relevant part):

“[E]every fiduciary is authorized: […] [w]ith respect to any property [..] owned by an estate […] [t]o sell the same […]” (emphasis added)

EPTL 11-1.1(b)(5)

Because of the immediate vesting rule, however, real property of the estate is no longer “owned” by the estate immediately after the death of the original owner. And therefore, based on its literal language, the specific EPTL provision should not apply to real property of an estate, and does not support the courts’ interpretation giving broad authority to the fiduciary to sell real property without a court order. The courts have struggled to interpret the statute to reconcile between the immediate vesting rule and the practical needs for the fiduciary to administer the estate efficiently, with minimal court intervention. As one court pointed out, “where property is subject of formal title, the executor is unavoidably going to have to be involved in formal transfer of title to the beneficiary.”[10] Considering such practical needs, the courts have interpreted the statute to allow the fiduciary broad authority “to enable them to deal with the property to the extent that they, as fiduciaries, must do”[11], even if the literal language of the statute does no clearly support such an interpretation.

Such a system of dual powers may increase the risks of disputes, uncertainties, and confusions. For example, the beneficiaries may rent out the home as the new owner, before the settlement of the estate, and only to learn subsequently that the fiduciary plans to sell the home to pay the estate expenses and debts. Given such risks, the optimal strategy for beneficiaries is to confirm with the fiduciary before planning an estate sale, or otherwise dispose of the home.

[1] The term “beneficiaries” will mean both the “devisees” under a will and the “distributes” when there is no will. Additionally, the plural form (beneficiaries) will mean both the plural and/or singular form.

[2] Here, “estate sale” means the sale of a person’s home (primarily real property and, sometimes, fixtures) when the person passes away, as opposed to the sale of all the contents of the home.

[3] Other implications may relate to the estate planning, or the responses of the beneficiaries / heirs to the ownership of the real estate.

[4] Surrogate’s Court Procedure Act, §1902: “The real property may be disposed of for any or all of the following purposes: (1) For the payment of the expenses of administration. (2) For the payment of funeral expenses. (3) For the payment of the debts of the decedent, including judgment or other liens, excepting mortgage liens, existing thereon at the time of his death. (4) For the payment of any transfer, estate or other death tax. (5) For the payment of any debt or legacy charged thereupon. (6) For the payment and distribution of their respective shares to the persons entitled thereto. (7) For any other purpose the court deems necessary.”

[5] 72634552 Corp. v. Okon, 2018 NY Slip Op 51991(U) (Sur. Ct. Kings. County 2018).

[6] Estate of Mendelson, NYLJ July 19, 2017, at 27, col. 3, fn. 4 (Sur. Ct., NY County 2017) (“B)eneficial entitlement passes automatically to specific beneficiaries or specific devisees, with only a `qualified legal title’ passing to the fiduciaries […].”)

[7] 72634552 Corp. v. Okon, supra. (“Accordingly, ‘title does not fully vest in the legatee until a fiduciary gives an assent to its release.’”, citing Estate of Coe Kerr, Jr., NYLJ Mar. 16, 1983, at 6, col. 3 (Sur. Ct. NY County 1983))

[8] NY Estates, Powers, and Trusts Law.

[9] See, e.g., In Matter of Freund, 162 Misc.2d 965 (Sur. Ct. Schoharie County 1994). (“an executor clearly has broad authority and power pursuant to EPTL 11-1.1 (b) (5) to sell real property”.)

[10] Estate of Mendelson, supra.

[11] Estate of Mendelson, supra.