Inheritance and Property Rights/Executor and first right of refusal
My wife and I were named executors of our neighbors will. We are also are power of attorney. In short he has no children, never married. He has several nephews who don't keep in touch. He would like his estate and proceeds of the estate to go to 10 constituents. We are one of the 10. We have helped in countless ways over the last 25 years as he is old.
We always have had an interest in his purchasing his house and property. (about 11 acres) The lawyer he used has stated that you open yourself up to litigation if he puts in a right of first refusal for us. He stated you can still purchase the house, property once you get it appraised at fair market value. My questions are:
1. Do we have to notify the 9 other individuals/non-profit groups listed in his will of the appraisal? Or that we plan on purchasing it?
2. If the estate is appraised at $100,000 by a licensed appraiser and an offer is made for say, $80,000, who approves that? The executor? It seems to me since we want to purchase the house legally, who 'polices' us as co-executors.
3. Is there anyway we could has first 'bid' on the house without misrepresenting our duties as executor?
ANSWER: Good question and I'm surprised at what the lawyer told you. The way you prevent litigation before it happens is a "no contest" clause in the will that says anyone directly or indirectly contesting any term of the will gets nothing and is considered to have pre-deceased the will writer. That's step one.
Next, you being the executors and recipients of property and the first refusal right -- this is easy.
Have the will drafted up but not signed; then have him go to another attorney that he pays for and he gets to by himself (either via taxi or someone other than you transporting) OR if he's bedridden, get an attorney that make house calls.
The attorney needs to speak to him privately and determine that the way this will is written is exactly how he wants it, that you have not suggested any of the terms to him, and that he's competent to make a will --- competency to make a will means does he realize he owns property and that on his death "something" has to be done with it. Even the loon Charles Manson has that capability although he has zero competence otherwise.
Make sure the will gives the executor the power to sell estate property on such terms as the executor deems appropriate. In California, if you don't have that clause, notice of intent to sell the property has to be published before you can sell and sometimes overbidders show up.
The attorney then needs to do two things -- 1) witness the will with these provisions (another witness may be needed as well -- they should accompany him/her) and 2) provide declaration to you under penalty of perjury stating that the atty met privately with Mr. X, discussed the will with him and all its terms, determined that he understood the will's terms and that what it says is what he really wants done; and 3) deliver the original to you once it's signed. Make copies. Keep the original in a safe place and do NOT discuss the terms of the will with anyone prior to his passing -- he should not do so either, although as everyone is estranged to some degree that shouldn't be a problem.
This isn't a guarantee that no litigation over your gift and first refusal right will occur, but because of the no-contest clause, a contingency fee attorney that a disgruntled heir hires to fight will realize that he'll get nothing out of such a fight because the client will be aced out completely.
That declaration is your "insurance" against such a contest -- I've never had a contest filed when that was done and made known, particularly when a neutral attorney assesses everything and you had nothing to do with the will's execution or the meeting with the neutral.
Now as to the math -- I recommend first getting a home inspection, and if they do structural pest inspections in Pennsylvania (sometimes called "termite" reports) get that too -- and have them examine the place with a fine tooth comb -- and get an estimate from a "retail price" contractor to fix everything.
Then and only then will you get an appraisal of the place and make sure the appraiser has, in hand, all of the above inspections & bids. They will crank that in to the valuation which they should do in "as is" condition -- since you will have to go to court for the surrogate (probate) proceedings, the court will supervise everything you do.
One thing that has to be done whether you buy the place or not, is an appraisal; so before that's done for the court you get all of the above as I said.
That same appraisal will be used when you file your motion with the court to allow the sale to you per the right of first refusal for $x. It should be observed that there is no 6% realtor's commission in the deal so that's a savings for the estate.
Notice of the proposed sale would be given to all the will beneficiaries with an opportunity to object.
You will need to retain counsel to probate the will when the time comes -- what we're doing is advance safeguarding.
Two "outside the box" ideas -- first, what if, today, you made a deal with him, approved by the neutral attorney again, to buy the house today with a life estate reserved back to your friend? Figure out what the place needs, now, such as a new roof, carpet, structural repairs, kitchen updated, new appliances all that -- let's say that comes to $40,000 and the house, today, is worth $100,000. You spend the $40k, now, to fix the place up after he signs the agreement and the deed to you is recorded.
He is guaranteed the right to continue to live there for life and you're paying, now, part of the purchase price.
For the $60k difference you can either give him cash, now or a note for $60k which will then become estate property -- you can make monthly payments on it to give him some money now monthly or set it up for one big balloon payment payable 5 years from today or within 6 months after his death whichever comes first. You should also pay the property taxes on the property for him after the deed to you is recorded, and make sure the homeowners insurance lists both you and the present owner as named insureds.
You will need to back up the figures with these detailed appraisals etc and have the no-contest provision in the will; AND have the arrangement evaluated by a neutral attorney,privately with your friend, before any money or deed changes hands.
What happens then is upon his death, the property is automatically yours without further action other than recording a death certificate and "notice of death of life tenant" with the registrar of deeds in your area (in CA and AZ that is the county recorder's office; some places do it at the court house) and the note receivable (and any other assets he owns at death -- the house wouldn't be one of them) goes through the probate/surrogate proceedings. Much easier than trying to sell the house in probate.
I would also recommend you get title insurance on this life-estate-reserved deed if title insurance is used in Pennsylvania so you know there are no outstanding judgments, liens, etc and that this gent actually owns the property himself and not jointly with someone else, living or dead.
What this also does is completely prevents any last minute changing of the will -- we use this a lot when estranged kids are going to make trouble and the will writer has a definite choice of who should get the house upon death -- it carries out his wishes today and he can benefit from some of the sale money that would otherwise go to the estate and be distributed.
Finally, this might be your best bet. You can avoid probate altogether if the property is put into a living trust on the same terms as the will, also reviewed by a neutral attorney. The trust, just like the will, specifies what happens to his assets on his death, you can be the trustees of the trust after his death and it's a clean deal. You just notify the beneficiaries of the trust terms after he dies, make an accounting to them and make arrangements to pay what you would still owe if you've done the life estate reserved transaction.
The reason to do this is you avoid probate proceedings completely -- the trust can be challenged just like the will can, but it can also have a no-contest clause. No court supervision is necessary for trust transactions, although if you have not done the life estate transaction, and the house goes into trust to be sold to you with the first right of refusal, I recommend circulating "notice of intent to exercise right of first refusal to purchase x house for $y" to all the heirs, and include with that notice all of the inspections, bids, and appraisal to show you're proposing a fair price.
So you have some options. Whatever you do, do not have anything in the trust that says disputes will be resolved by binding arbitration. Never agree to such a clause if you have a choice; arbitrators need not follow the law, need not pay attention to facts of a dispute and can (and often do) make an arbitrary decision everyone is stuck with (no appeal possible), justified by being "quick" and "inexpensive".
Let me know if you have any further questions -- I've thrown a lot at you. This should be a problem free transaction if done properly.
PS: If money is changing hands now, it might be a good idea for you to buy a pre-paid funeral plan for this gent as part of your purchase price (i.e. if it costs $1,500 you pay that and deduct from what you pay for the house) -- it makes life much easier with prepaid plans.
---------- FOLLOW-UP ----------
QUESTION: Thanks for a comprehensive answer. Interesting you mention that out of box idea. My wife was thinking of the idea of offering to purchase his house now, let him live there for the rest of his years and he can use the money for his estate (trust). One concern we had for him was if he had to go into long term care. In PA, Medical Assistance would liquidate his home and other assets to pay for this care. So if he had any good intentions of leaving his estate and anything else to distant relatives and non-profits it would not amount to much.
You have made it very clear.
What you're describing sounds like Medicaid rules. The look back 3 years prior to death for any transfers not for fair value I don't see a problem with losing the house to them if he has a reserved life estate. Why? Because all they could sell is his interest in the house for only as long as he lives...something next to worthless.