Real estate owners listen up: Plan far in advance

Sandra W. Reed
Sandra Reed

Mary Butler, a widow, owned a sizeable ranch in Texas. Her three children were scattered throughout the world - in St. Louis, San Francisco and Paris. Not one of them wanted the property or would be able to manage it after Mary died. Her estate plan included selling the ranch to convert the land into cash as inheritance for her three children.  Mary listed the property with a realtor. Several months into the listing agreement, Mary had a stroke which rendered her without capacity to contract. Subsequently, the listing agent obtained a buyer who offered a full price contract to purchase the ranch. Will Mary be able to sell the property now, or will the sale have to wait until an executor with power to sell the property in her estate is appointed?

Sale Before Death Requires Prior Planning

1.    Sale Through Statutory Durable Power of Attorney

If prior to her stroke, Mary had executed a Statutory Durable Power of Attorney (POA) which includes the power to sell, the agent named in her POA will be able to sign the contract accepting the buyer’s offer and can follow through with signing all the necessary documents for the closing on the ranch.

            If the POA had gone into effect immediately upon Mary’s signing it, nothing further would be necessary to activate the power of the agent. If Mary’s POA was what is known as a “springing power,” it would be necessary to follow the requirements for having Mary declared incompetent to handle her own affairs. In most cases, the POA will state that one or more physicians have to issue an opinion that the person granting the power no longer has the capacity to act independently. Presumably, Mary’s treating physician would be able to provide that assessment.

2.    Sale Through Guardianship

The family could instigate a guardianship proceeding to appoint a guardian of the estate with power to sell the property. This proceeding would be easier, faster and less expensive if Mary had signed a document prior to her stroke indicating whom she would prefer to be appointed as her guardian should she become incapacitated. The probate court would still have to find that the person Mary named was competent to serve; but if Mary has chosen prudently, this would be a formality. 

If Mary has not named her own guardian, the court will have to hear evidence as to who is the best person to serve and render a decision. If the family is not in agreement regarding who should be guardian, this can result in protracted litigation.

The saying in real estate transactions that “time is of the essence” could present substantial problems with sale of the ranch. Buyers might not be patient enough to wait for the guardianship to be established and the sale opportunity would be lost.

Sale in the Probate Estate Requires Qualification of Executor

Absent a POA or a guardianship, the sale of the ranch would have to be postponed until Mary dies. Mary has a will naming her son as independent executor. The will gives the executor all the powers which are available to a trustee under the Texas Trust Act, which includes the power to sell property. The son will have to file an application to probate the will, show he is qualified to be an executor and obtain Letters Testamentary allowing him to serve. Then he can sell the ranch.

Since Mary is no longer capable of managing the ranch and may ultimately be placed in assisted living or a nursing home prior to her death, this could mean the property will be neglected, resulting in loss of value. It will mean continued expenses for upkeep and taxes will be incurred.

Prior Planning is Crucial WithReal Property Ownership

Those who own real property must plan for management and sale of that property, should the owner no longer retain that capacity. In most cases, executing a Statutory Durable Power of Attorney while one has the power to contract will be sufficient. However, in certain cases, other arrangements may be necessary. Those who have not done this critical planning should seek counsel of a competent lawyer as soon as practical.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives and practices in beautiful Somervell County, near Chalk Mountain.