One of the most common reasons people give for creating an estate plan is the desire to ensure that their estate assets are passed down to the beneficiaries of their choosing. This is especially true with sentimental assets or things such as the family home. Failing to create a comprehensive and well thought out plan, however, could result in estate assets being sold during the probate of your estate instead of being passed down according to your wishes. To help ensure that your wishes are carried out after you are gone, an estate planning attorney at Bennett | Michael | Hornsby explains why your Executor might need to sell estate assets in Tennessee.
Understanding the Role of Probate in Tennessee
When someone passes away in Tennessee, the estate typically goes through a legal process known as probate. During this process, the court validates the Will
(if there is one), appoints a Personal Representative (usually the Executor named in a Will), and oversees the payment of debts and taxes before any remaining assets are distributed to heirs or beneficiaries. If the decedent did not leave a Will, the estate is administered according to Tennessee’s intestate succession laws; however, the basic legal steps remain the same. Probate ensures that assets are properly inventoried and valued, that creditors are given an opportunity to file claims, and that any disputes among heirs or beneficiaries are resolved.
Reasons an Executor Might Be Forced to Sell Assets
One of the Executor’s most important legal duties and responsibilities is to ensure that all valid debts and financial obligations of the estate are paid before the assets are transferred to beneficiaries and/or heirs of the estate. Debts may include medical bills, funeral costs, attorney and court fees, taxes, and claims submitted by creditors. If the estate lacks sufficient liquid assets, meaning cash or assets easily converted to cash, the Executor may be forced to sell property to cover these expenses.
By way of illustration, imagine that you leave behind an estate comprised of the family home, personal belongings, a vehicle, and a bank account with $100,000 in it. The family home is paid off and valued at $500,000, but your estate owes $250,000 in debts and taxes. The $100,000 in cash left behind in your bank account will not cover your estate debts, which then forces your Executor to sell the home to raise the cash needed to settle your debts. Although your wishes were to pass the home down to your adult daughter, the home must be sold to pay estate debts.
Another scenario that can result in the unintended sale of an estate asset is when your estate plan lacks specificity and clarity. For example, imagine that you leave behind a home that is paid off and valued at $500,000 and another $500,000 in cash and investments. Your Last Will and Testament simply states that your estate assets are to be divided equally between your adult children; however, your plan was to give the home to your daughter and keep the home in the family. If neither or both adult children want the home, your Executor may be forced to sell the home and add the profits to your estate to be divided equally between the beneficiaries.
How Avoiding Probate Reduces the Risk of Asset Sales
The good news is that working with an experienced estate planning attorney to create a carefully drafted estate plan can dramatically reduce the chances that your Executor will be forced to sell property during the probate process in Tennessee.
One of the most effective strategies you can utilize to help avoid unintended sales during the probate of your estate is to avoid probate altogether for some or all your assets. Establishing a revocable living trust (RLT) can help accomplish this goal. A RLT allows you to transfer ownership of your property into the trust while you are still alive. You maintain control over the assets during your lifetime, and after your death, the successor Trustee can manage and distribute the property directly to your beneficiaries without court involvement. Because the assets in the trust do not go through probate, they are not subject to the delays and costs of that process which makes them far less likely to be sold off to cover expenses. The trust terms can also be used to clarify your wishes regarding the distribution of estate assets.
Another useful approach involves using beneficiary designations for appropriate accounts and financial products. Life insurance policies, retirement accounts, and bank accounts often allow you to name a beneficiary who will receive the asset directly upon your death. These assets bypass the probate process entirely and are immediately available to the designated person. Similarly, titling assets in joint ownership with right of survivorship can allow the surviving owner to take possession of the asset automatically upon your death, thereby avoiding probate entirely.
Maintaining Liquidity in Your Estate to Avoid Asset Sales
Avoiding probate is always a beneficial estate planning goal; however, it is also critical to maintain adequate liquidity within your estate to avoid unintended asset sales. Keeping a sufficient portion of your estate in the form of cash or liquid investments provides your Executor with the resources needed to pay debts, taxes, and other expenses without selling sentimental or legacy property. Purchasing a life insurance policy is another way to create liquidity as long as the policy is payable to your estate or to a trust, such as an Irrevocable Life Insurance Trust (ILIT). With the right type of life insurance policy, the proceeds can be used to pay bills or taxes, giving your Executor financial flexibility while preserving other estate assets for distribution.
Contact a Murfreesboro Estate Planning Attorney
If you have additional questions or concerns about how to avoid unintended assets sales during the probate of your estate, contact an experienced Murfreesboro estate planning attorney at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.
