Use a Calendar to Plan Ahead
One of the most common mistakes sellers of probate real estate make is not allowing enough time to work through the probate process before selling the home. Even though the beneficiaries may think they own the house at the moment of a decedent’s death, Colorado law requires that certain notices be given and certain waiting periods be adhered to before the beneficiaries or the estate can properly pass legal title to a buyer at closing. For example, if the decedent did not leave a will or the will was lost and cannot be located, the probate court requires the personal representative to notify anyone who might have legal standing to be personal representative and allow that individual 14 days to appear and make her case about why she should be the personal representative. Calendaring appropriate dates and deadlines is important even if you used a probate avoidance technique to plan for passing title to beneficiaries.
Example: A beneficiary deed is a popular way to plan for passing real estate to beneficiaries in Colorado. (See C.R.S. §15-15-402) While using a beneficiary deed to transfer title can avoid probate, it still involves a four-month waiting period before the property can be conveyed by the beneficiary. (See C.R.S. §15-15-407) Any proposed sale before that deadline would not allow the beneficiary to pass marketable title under the applicable Colorado Real Estate Title Standards (“CRETS”).
Another example is that Colorado probate law allows a period of four months after a “creditor notice” is published by the personal representative within which creditors are allowed to make claims against the estate. (See C.R.S. §15-12-801) These creditor claims can make it difficult to distribute funds to beneficiaries after a sale. This is not to say that a residence can’t be sold before the expiration of the creditor notice period. However, if a sale is closed before the expiration of the creditor notice period, the proceeds of the sale should be held in the estate bank account to avoid any potential personal liability of the personal representative for distributing funds that a creditor could claim. Again, the importance of good legal counsel in probate cannot be overstated.
If a personal representative wants to transfer a house to a beneficiary through probate before the applicable statute of limitations has expired, a court order approving and confirming the transfer should be obtained from the probate court to vest marketable title in the beneficiary. (See C.R.S. §15-12-107 and CRETS §11.1.7) This type of order confirming the distribution is needed to make sure the distribution is not made to frustrate creditors of the decedent or otherwise play favorites among the same class of beneficiaries. The applicable statute of limitations where no court order confirming the transfer would be necessary is the later of: (i) one year after the date of the deed of distribution to the beneficiary, or (ii) three years after the date of the decedent’s death. (See C.R.S. §15-12-803)
The notice periods involved in probate could force a personal representative to extend a proposed sale or risk losing the sale if the estate can’t close on the date specified in the purchase contract. It is important to look at the calendar when you begin a probate or trust administration to determine when the estate or trust will be legally allowed to pass title at closing. You can then work backward to the current date to allocate appropriate time for everything to happen as it needs to under the law.
