Inherited Property When Heirs Live Out of State

Who Has Authority to Sell — and Where That Authority Comes From

Authority to sell always comes from a document or a court order. Family agreement alone never supplies it. How the house was held at death decides which document.

Probate. Under Probate Code section 8400, a person has no power to administer the estate until appointed personal representative, and the appointment takes effect only when the court issues letters. Letters are the court's document proving that authority. A person named as executor may, before then, pay funeral expenses and take necessary steps to maintain and preserve the estate.

Once letters issue, Probate Code section 10308 provides that a sale of estate real property must be reported to and confirmed by the court before title passes. That applies whether the sale is private or at auction, and even if the will directs the sale, except as Probate Code section 10503 provides. Section 10503 covers a personal representative who holds authority under the Independent Administration of Estates Act, a law that lets the court grant power to act with less court supervision. Under Probate Code section 10503, the court-confirmation requirements, such as published notice of sale, court approval of agents' and brokers' commissions, sale at not less than 90 percent of appraised value and the court's examination of the sale, do not apply to a sale made with that authority. In practice, a sale goes forward without a confirmation hearing only when the court granted the authority to sell real property and no one with the right to object does so after receiving a notice of proposed action, which is a written notice sent to interested people before the sale. If someone objects, the sale returns to the court. A guide to selling inherited property during probate walks through both paths.

A trust. When the house was held in a trust, the successor trustee's authority comes from the trust document. A title company will generally ask to see that document before insuring a sale.

A transfer on death deed. Under Probate Code section 5652, a revocable transfer on death deed passes the owner's interest to the named beneficiary at death. It does so subject to recorded liens, encumbrances and leases, and it gives no warranty of title. The beneficiary then holds title and can sell.

Simplified procedures. Two court procedures cover real property without a full probate. The petition to determine succession to the decedent's primary residence is available under Probate Code section 13151 for a primary residence within a value limit, once 40 days have passed since the death. The affidavit for real property of small value is available under Probate Code section 13200 no sooner than six months after the death, with an inventory and appraisal attached. Both value limits are adjusted periodically. For deaths on or after April 1, 2022, section 13200 uses the adjusted figure in effect on the date of death. The California Courts guide explains how to check whether a simple procedure fits.

When Multiple Heirs Own the Property Together

Several heirs often end up owning one house together. Their shares are usually undivided, meaning each heir owns a percentage of the whole rather than a particular room or corner. Probate Code section 5652 makes this explicit for one route: when a transfer on death deed names more than one beneficiary, they take as tenants in common in equal shares. When a share fails or lapses, it goes to the others in equal shares. With a will, a trust or no plan at all, the shares depend on those documents and on how title ends up being transferred.

A few practical consequences follow from shared ownership:

• No one co-owner can sell the whole house alone. A sale of the entire property needs every owner's signature or a court's authority.
• Each co-owner can generally sell or give away their own share. A buyer of a fractional share steps into the co-ownership, with the same shared title and the same need to agree with everyone else. Few buyers want that.
• California law gives a co-owner a path through the Superior Court. In a partition action, a co-owner asks the court to divide the property or order it sold and the proceeds shared.

When every owner signs the same listing agreement or the same purchase contract, the sale is voluntary and no partition case is needed. When heirs are in real conflict, or someone suspects misconduct, that is a contested matter handled by an attorney who litigates trust and probate cases.

Distance is mostly a matter of signatures. Civil Code section 1189 provides that a certificate of acknowledgment taken in another place is sufficient in California if it is taken under the laws of the place where it is made. An acknowledgment is the notary's confirmation of who signed. Whether a particular document needs more before it can be recorded in a California county, such as an apostille or other authentication for a document signed abroad, is a question for the estate's attorney or the title company.

The Step-Up in Basis and What It Means When the Property Is Sold

Basis is the starting figure used to measure taxable gain on a sale. For inherited property, 26 U.S.C. § 1014 makes basis something other than what the parent paid. Under 26 U.S.C. § 1014(a), basis is generally:

• the fair market value of the property at the date of the decedent's death;
• if the estate made an election under section 2032, the value on the alternate valuation date that section prescribes;
• if an election was made under section 2032A, the value determined under that section; or
• to the extent the exclusion in section 2031(c) applies, the decedent's own basis.

In plain terms, this is why many heirs hear the phrase "step-up in basis." Gain is measured from the date-of-death value, under the first alternative, rather than from a purchase price decades old. Take a hypothetical: a parent bought a house long ago, and the heirs sell it close to its value at death. The gain measured from that basis may be small. If the sale price is above the date-of-death value, the difference is gain. The basis itself is fixed by the rule above. Learning what the value was at the date of death usually means an appraisal as of that date. In a probate, it means the inventory and appraisal the estate files.

California generally taxes California-source income, and the sale of California real property is that kind of income. An heir who lives elsewhere may owe California income tax on the gain and may also have a filing question in their home state. A CPA, an enrolled agent or a tax attorney reviews basis, gain and where the gain is taxed.

Withholding is a separate step that happens at escrow, the neutral account through which a sale closes. Under Rev. & Tax. Code section 18662, when an individual sells California real property, the buyer must generally withhold 3 1/3 percent of the sales price. The seller may instead elect to have withheld an amount certified in writing under penalty of perjury, figured from the gain at the rate the statute specifies. Withholding is not required unless the sales price exceeds $100,000. It is also not required unless the escrow person gave the buyer written notice of the requirement, an exception that does not cover an intermediary or accommodator in a deferred exchange. The buyer is excused when relying in good faith on the seller's written certificate. Those certificates cover several situations, including that the property was the seller's or the decedent's principal residence under federal law. The Franchise Tax Board publishes the certification form.

Property Tax and the Parent-Child Exclusion Under Proposition 19

Reassessment is a separate tax question from the sale. California property tax is figured from a "base year value" that generally resets to current market value when ownership changes, and a transfer at death is generally a change in ownership. The Judicial Council's DE-147 Duties and Liabilities of Personal Representative tells a personal representative to file a change of ownership statement with the county recorder or assessor in each county where the decedent owned real property, at the same time the inventory and appraisal is filed.

For a transfer on or after February 16, 2021, the parent-child exclusion is Rev. & Tax. Code section 63.2. It excludes a qualifying transfer of a principal residence between parents and children from reassessment. It also covers grandparents and grandchildren when all of the grandchild's parents who are the grandparents' children have died. The exclusion is allowed only if a claim is filed with the assessor. Its conditions are specific:

• The home must have been the parent's principal residence. It must also become the child's principal residence within one year of the transfer.
• The child must claim a residence exemption. The child must file for the homeowners' or disabled veterans' exemption within a year of the transfer. The exclusion ends when no eligible transferee still qualifies for one of those exemptions.
• There is a value limit. It is measured against the home's existing taxable value. When the market value exceeds the limit, part of the value is added to the taxable value. The county assessor applies the figure for the date of transfer.
• The claim has a filing deadline. It must be filed within three years after the transfer, before a transfer to a third party, or before the eligible transferee stops living there, whichever comes first. A claim is also timely within six months after the mailing of a notice of supplemental or escape assessment issued because of the transfer. If the property has not gone to a third party, a later claim is still considered, but any exclusion applies only from the lien date of the year the claim is filed.

An heir who lives in another state and sells without moving in generally does not meet the residence condition, so reassessment applies. A family weighing whether one heir will move in and keep the house can ask the county assessor's office about the exclusion and its claim form.

How the Sale Actually Works: Listing, Direct Sale, and What Each Involves

An out-of-state family usually chooses among three ways to sell. Each has real tradeoffs, and none changes who must authorize the sale.

A listing with a licensed real estate agent. This reaches the widest pool of buyers and is usually how a house brings its highest gross price. In exchange, the sellers pay commission, prepare the house, schedule showings and wait while a buyer's loan is approved. For heirs far away, a local agent can also be the person who sees the house in person.

A sale by the owner, without an agent. There is no listing commission. The sellers take on pricing, marketing, showings, negotiation and paperwork themselves, which is harder when no owner lives near the house.

A direct sale to a buyer who pays cash and takes the house as it is. The house can be sold in its present condition, and the buyer does not depend on a loan. The price is the cost of that convenience. A direct buyer takes on the repairs, the risk and the cost of reselling, so its offer often comes in below what the same house might bring on the open market. What the family gets back is less preparation, fewer showings and no wait on a lender's approval. A reader can get an offer on an inherited property from Silver Lining Inherited Property, for a direct as-is sale, and asking for one carries no obligation to sell.

Whoever the buyer is, the legal steps stay the same. Letters, a notice of proposed action, court confirmation where it applies, liens, taxes and any required disclosures apply to every buyer, cash or financed. A comparison of a cash offer versus a listing lays these side by side.

Disclosure rules turn partly on who is selling. Civil Code section 1102.2 exempts certain sales from the Civil Code's transfer disclosure article, including sales ordered by a probate court and sales by a fiduciary in the administration of a trust or a decedent's estate. The fiduciary exemption does not apply when the trustee is a natural person who is a trustee of a revocable trust and either is a former owner of the property or lived in it within the preceding year. The section also exempts sales from one co-owner to another. The estate's attorney can say which other disclosure duties apply. For a house with deferred maintenance, how families sell an inherited house needing repairs goes further.

The way a family tells which route fits is by comparing written offers and estimated net proceeds. That means the price less commissions, repairs, carrying costs such as taxes and insurance, loan payoffs and closing costs. Closing itself can usually be handled remotely through a title or escrow company, with documents signed before a notary where each seller lives.

Practical Steps for Out-of-State Heirs Managing a California Property Sale

Distance makes ordinary steps feel heavier, and much of the work is coordination by phone and mail. The steps below are roughly the order a sale asks for them.

1. Confirm who holds authority to sell. This is the personal representative with letters, the successor trustee, the beneficiary of a transfer on death deed, or every co-owner on title. No listing agreement or purchase contract can be signed until this is settled.
2. Gather the governing documents. These include the will, the trust document, the letters testamentary or letters of administration, any recorded deed and a certified death certificate.
3. Order a preliminary title report early. A title company's report shows how title is held now and any liens, mortgages or other encumbrances that must be paid or cleared at closing.
4. Work with a California title or escrow company. It handles the closing mechanics, collects payoffs and signatures, and is used to signers in other states.
5. Plan the signing. Civil Code section 1189 addresses acknowledgments taken outside California, as described above. The estate's attorney or the title company says what a given county will accept for recording, including whether remote online notarization works for a particular document.
6. Look after the house while it is for sale. The DE-147 form tells a personal representative to keep appropriate insurance on the estate's assets for the whole administration. A vacant house may also need its insurance reviewed, its utilities kept on, and someone local to check on it.
7. Decide about the contents. Clearing and valuing furniture and belongings is a separate job, usually handled by an estate-sale company or a cleanout service.

The DE-147 form also sets one probate deadline: an inventory and appraisal is due within four months after letters are first issued. The same form tells a personal representative to consult an attorney about the legal requirements for sales of estate property. Each part of the work has its own professional:

• The estate's or the trust's attorney handles authority and court filings.
• A CPA, an enrolled agent or a tax attorney handles basis, gain and withholding.
• The county assessor's office handles reassessment and exclusion claims.
• A licensed real estate agent handles a listing, if the family lists.
• The title or escrow company handles the closing.

County details differ, and a page such as selling inherited property in San Diego County shows how local offices fit in.