Real Estate Probate and Inheritance

When a property owner passes away, their real estate does not always automatically transfer to the next of kin. In most cases, real estate must go through probate, a court-supervised process for distributing assets. Understanding how probate works, how inheritance laws apply, and what steps heirs must take can help avoid costly delays and legal disputes.

What is Probate

Probate is a legal process that occurs after someone dies, where the court validates their will (if one exists), oversees the distribution of assets, ensures debts and taxes are paid, and authorizes title transfers.

Key elements of probate include the following:

• Authenticating the will or determining intestate heirs if no will exists
• Appointing an executor or administrator to oversee the estate
• Identifying and inventorying assets, including real estate
• Paying off debts, taxes, and liens
• Distributing remaining property to heirs or beneficiaries

When Probate Is Required

Probate is usually required when:

• The deceased owned real estate solely in their name
• There is no valid will or trust covering the property
• The estate's value exceeds the small estate limit (this limit varies by state)
• No valid beneficiary designations or transfer-on-death deeds exist

However, probate may be avoided when:

• Property was held in joint tenancy with right of survivorship.
• The real estate was placed in a revocable living trust.
• A transfer-on-death (TOD) deed was recorded before death (only available in certain states).
• The estate qualifies as a small estate under state thresholds, and an affidavit can be used.

How Property is Passed After Death

How real estate passes after death depends on how the property was titled and whether the deceased had estate planning tools in place. Typically, property passes in the following ways:

• Sole Ownership: If the deceased owned the property solely and did not leave it in a trust or name a TOD beneficiary, the home goes through probate.
• Joint Tenancy with Right of Survivorship: The surviving co-owner, often a spouse or family member, automatically inherits the property without probate.
• Community Property with Right of Survivorship: In community property states like California, Texas, Arizona, and others, spouses may co-own real estate and automatically inherit it upon death.
• Tenancy in Common: Each co-owner owns a share that passes according to their will or through probate. There is no automatic survivorship.
• Trust-Owned Property: If the property was held in a living trust, it bypasses probate and is distributed by the successor trustee per the trust's instructions.
• Transfer-on-Death (TOD) Deeds: TOD deeds let a property owner name a beneficiary who automatically inherits the property upon death, bypassing probate.

Wills vs. Trusts

Although wills and trusts play similar roles in passing down real estate, they function differently per involvement, speed, and privacy.

Wills have the following features:

• Must be submitted to probate to take effect
• Allow the testator to name specific heirs for the property
• Are public documents once filed with the court
• Can be contested, which delays the process

By contrast, trusts offer the following features:

• Allow assets, including real estate, to be transferred without court involvement
• Give more privacy and control
• Allow faster access to property by beneficiaries
• Require property to be titled in the name of the trust before death

Title and Deed Transfer Impact

In real estate probate and inheritance, the transfer of title and deed is the final legal step that formally moves ownership from the deceased to their heirs or beneficiaries.

If the property was solely owned and not placed in a trust or passed via a transfer-on-death deed, probate is typically required. During probate, the court authorizes an executor or administrator to distribute the estate, often by recording a new deed at the local recorder's office.  Usually, the deed must be recorded along with a certified death certificate, court order (if applicable), and any required transfer tax forms.

This updated deed, along with a certified death certificate and supporting court documents, ensures the new owner's name is legally recorded on the title. Without this formal transfer, the heir cannot sell, refinance, or legally possess full ownership of the property.

Note that mortgages, liens, and unpaid property taxes remain attached to the parcel and must be resolved before clean title can be delivered. Also, inaccurate deed wording or failure to record can create clouds requiring quiet-title actions that delay inheritance and increase costs.

Taxes and Legal Obligations

Certain estate-related taxes and legal obligations apply during or after real estate probate. These include the following:

• Debts and creditor claims: Executors must identify and pay valid creditor claims from estate assets before distribution. Mortgages remain attached to property until paid or otherwise resolved.
• Property taxes and assessments: Unpaid property taxes can become liens and restrict the estate's ability to transfer clean title.
• Estate and inheritance taxes: Federal estate tax applies only to large estates above current exemption thresholds. However, state estate or inheritance taxes may apply at much lower thresholds in certain states.
• Income tax on sale: When inherited property is sold, basis and capital gains rules matter. Beneficiaries often receive a stepped-up basis (to fair market value at death) for federal income tax purposes, but state rules and timing can vary.
• Reporting and filings: Executors may need to file estate tax returns, final income tax returns for the decedent, and fiduciary income tax returns for the estate if it generates income during administration.

Common Probate Questions

The following are frequently asked probate questions.