Selling Inherited Property During Probate in California

Independent Administration: Selling Without a Court Confirmation Hearing

The Independent Administration of Estates Act is a California law that lets a personal representative handle many estate matters without asking the court to approve each one, when the court grants that authority. Probate Code section 8405 requires the letters to note whether the personal representative may act under the Act and, if so, whether that authority includes or excludes the power to sell real property. The Judicial Council's Letters form, DE-150, shows a box for full or limited authority.

The difference matters for a house. Under Probate Code section 10511, a personal representative with full authority has the power to sell or exchange estate real property. Probate Code section 10403 defines limited authority as everything except the power to sell, exchange or grant an option on real property, or borrow against it, and Probate Code section 10501 requires court supervision for those acts when authority is limited.

Before the proposed action is taken without court supervision, Probate Code section 10580 requires a notice of proposed action wherever the provision granting the power calls for one, and allows one even when it does not. The Judicial Council's Notice of Proposed Action form, DE-165, has a box for a real property transaction. It states the material terms, including any sale price and any commission, and it warns that a sale of real property without court supervision will not be presented to the court for confirmation at a hearing where higher bids may be made. Under Probate Code section 10581, the notice goes, with limited exceptions, to each known devisee and each known heir whose interest would be affected, anyone who filed a request for special notice, and the Attorney General if part of the estate is to pass to the state. Probate Code section 10586 requires delivery not less than 15 days before the date stated in the notice.

An heir who objects does so in writing, delivered to the personal representative's stated address before the later of the date in the notice or the date the action is taken, under Probate Code section 10587. With such an objection, Probate Code section 10589 requires a sale that would otherwise need court supervision to go through the court-supervised process. Without one, the DE-165 form warns, recipients are treated as having consented. Independent administration changes the procedure; it does not lessen the personal representative's duties, covered below.

Court-Confirmation Sales: How the Hearing and Overbid Process Work

A court-confirmed sale is the default. Probate Code section 10308 says that, except for sales under independent administration, every sale of estate real property must be reported to and confirmed by the court before title passes, even if the will directs or allows the sale. In practice, it applies when authority is limited, when the letters grant no independent authority, or when an objection sends a proposed sale back to court. If the personal representative does not file the report and petition within 30 days after the sale, the buyer may file them.

Value is set first. The State Controller's Office page on probate referees says the Controller appoints probate referees to appraise estate assets, and the Judicial Council's statement of personal representative duties, DE-147, says a court-appointed referee values the property unless the court waives the appointment. Probate Code section 8800 requires the inventory and appraisal within four months after letters are first issued, or within further time the court allows.

For a private sale, Probate Code section 10309 generally bars confirmation unless the property was appraised, with a valuation date, within one year before the confirmation hearing, and the offer is at least 90 percent of that appraised value. A new appraisal may be obtained if the old one is stale or the court finds it too high or too low.

At the hearing, under Probate Code section 10310, the court examines the need for the sale (unless the will authorizes it) and the personal representative's efforts to obtain the highest and best price, and any interested person may object. A written higher offer may be made to the court there. Under Probate Code section 10311, the court generally must accept it if it is at least 10 percent more on the first $10,000 of the original bid and 5 percent more on the amount above $10,000, comes from a responsible person, and complies with the law, though the court may decline and order a new sale. Probate Code section 10313 then provides for an order confirming the sale and directing the deed to be signed.

Side by side, the two routes differ in a few ways.

Simplified Procedures: When Probate May Not Be Required

Not every inherited house goes through a full probate case. California offers simplified court procedures for smaller estates, including a petition to determine succession to a decedent's primary residence, for a home below a value limit. Those dollar limits are adjusted over time, so the current figure and its effective date are best taken from the California Courts, whose self-help guide to property after someone dies walks through how to tell which process fits.

How title was held is the other large factor. A house held in a living trust is generally handled by the successor trustee, the person who takes over under the trust document, and the authority to sell comes from that document rather than from letters. Property held in joint tenancy, or as community property with right of survivorship, generally passes to the surviving owner outside probate. Each of these is its own kind of sale with its own paperwork.

Avoiding probate does not mean avoiding everything else. Tax rules, the county assessor's reassessment process and seller disclosure duties still apply to a sale, as the next sections describe.

The Personal Representative's Duties When Selling Estate Real Property

A fiduciary duty is a legal duty to act for the benefit of others, here the estate, its heirs and its beneficiaries, rather than for oneself. The Judicial Council's DE-147 statement of duties says estate money and property must be kept separate from anyone else's, and that the personal representative may be removed or made to repay the estate if court permission is needed and not obtained.

Real property and personal property follow different rules. Probate Code section 10150 lets the personal representative contract with a licensed real estate broker to find a buyer for real property, and separately with agents for personal property such as furniture or vehicles. Under Probate Code section 10161, in a court-confirmed sale a broker's commission is what the court finds reasonable, not more than the contract allows. Clearing and selling the contents of a house is a separate subject.

Self-dealing is closely limited. Probate Code section 10501 requires court supervision, even with full authority, to sell estate property to the personal representative or to the personal representative's attorney. A narrow exception applies only when the representative is the sole beneficiary or all known heirs or devisees consent, the creditor-claim period has expired, special-notice requesters consent, and every filed creditor claim is paid, settled, withdrawn or consented.

Disclosure is a separate question. Civil Code section 1102.2 lists sales to which the transfer disclosure article does not apply, including sales ordered by a probate court and sales by a fiduciary administering a decedent's estate or a trust. The fiduciary exemption does not apply where the trustee is an individual trustee of a revocable trust who is a former owner or lived in the property within the preceding year. An attorney can say which other disclosure duties apply. Where heirs disagree with how a sale is handled or suspect misconduct, that is a contested matter for an attorney who litigates trust and probate cases.

Tax Considerations When Selling Inherited California Real Estate

Tax questions often arrive just when a family is tired of paperwork, and a few plain concepts help. Basis is the starting figure used to measure gain on a sale. Under 26 U.S.C. § 1014(a), the basis of inherited property is generally its fair market value at the date of death, with exceptions the section lists, such as an election to use an alternate valuation date. Whether a particular sale produces taxable gain depends on the facts, and a CPA, an enrolled agent or a tax attorney reviews that question.

Property tax works differently. When ownership changes, the county assessor may reassess the property to current value. For transfers from parents to children, or in some cases grandparents to grandchildren, on or after February 16, 2021, California law provides an exclusion from reassessment with conditions, and a claim must be filed with the county assessor. The deadline, the value limits and the forms come from the assessor's office in the county where the house sits. Probate Code section 8800 also requires the personal representative to certify, when filing the inventory, either that the decedent owned no California real property or that a change in ownership statement was filed in each county where real property was owned.

California also requires an amount to be withheld from the proceeds of some real estate sales. The Franchise Tax Board publishes the current rules, exemptions and forms. This section is information, not tax advice.

Ways to Sell: Listing, Owner Sale, and Direct Sale Compared

Three broad paths exist, and each runs inside the probate rules above. A listing with a licensed real estate agent exposes the house to the open market, which suits the court's interest in efforts to obtain the highest price; the DE-260 Report of Sale form asks how the property was exposed to the market, such as listings or open houses. The tradeoffs are preparation, showings and a commission, which in a court-confirmed sale the court fixes.

A sale by the owner, here the personal representative, without an agent avoids a listing commission. It places the marketing, negotiating and paperwork on the personal representative, and the same notice, appraisal and confirmation rules still apply.

A direct sale goes to a buyer who pays cash and takes the house as it is. A direct offer is often lower than an open-market sale price, because the buyer takes on the repairs, the risk and the cost of reselling. In exchange the seller gets less preparation, fewer showings and less dependence on a buyer's loan. A cash or as-is sale does not avoid, skip, shorten or simplify probate, a court's confirmation, a required notice, a required disclosure, a lien or a tax; the estate's authority and the court's steps are the same whoever the buyer is, and a court-confirmed sale remains open to higher offers at the hearing.

Comparing written offers and estimated net proceeds, meaning the price less commissions, repairs, carrying costs, loan payoffs and closing costs, is how a family tells which way fits. Silver Lining Inherited Property can review an inherited property and discuss whether a direct as-is sale fits; a review is not an offer and carries no obligation to sell.