Selling an inherited house

Bottom line first. In Colorado, a personal representative (PR) who has been appointed has the same power over the title to estate property that an absolute owner would have, and can use it without notice, a hearing, or a court order. That includes selling the house. But the power is held “in trust” for creditors and the other people with an interest in the estate. So you sell carefully, pay what must be paid, and only then split what is left. This lesson is general education, not legal or tax advice.

Where your power to sell comes from

The statute says: “Until termination of his appointment a personal representative has the same power over the title to property of the estate that an absolute owner would have, in trust however, for the benefit of the creditors and others interested in the estate. This power may be exercised without notice, hearing, or order of court.” (C.R.S. 15-12-711). Title means legal ownership of the property. Put simply: while your appointment lasts, you can act for the estate the way an owner would, but you must act for the benefit of everyone with a stake, not just yourself.

A second section lets a PR, acting reasonably for the benefit of the interested persons, use the powers listed in the “Colorado Fiduciaries' Powers Act,” except as the will or a court order in a formal proceeding restricts it (C.R.S. 15-12-715(1)). A formal proceeding is a court case with notice and a hearing, as opposed to the quicker paperwork route. Our sources do not reproduce that Act, so check with the court's self-help center or a lawyer if a will says anything about selling or keeping the house.

Two guardrails. First, the duty to settle the estate “as expeditiously and efficiently as is consistent with the best interests of the estate” applies to a sale too (C.R.S. 15-12-703(1)). Second, you are personally liable for the harm of running the estate only if you are personally at fault (C.R.S. 15-12-808(2)).

Proving you are the one in charge

A buyer, a title company, or a bank will want proof. The court's instructions say the signed, certified copy of the Letters (JDF 915, Letters Testamentary or of Administration) “proves that you are the person in charge of the estate” (Colorado Judicial Branch, probate with a will, informal route). So ask the court for certified copies. The PR's powers come from the appointment, so heirs acting alone do not have them.

Before you list the house

• Find out what the house is worth on the date of death. The law lets you employ a qualified, disinterested appraiser to find fair market value as of the date of death of an asset whose value may be in doubt (C.R.S. 15-12-707). This also helps with the inventory (JDF 941).
• Look for liens. A mortgage is a lien, and it is paid out of the sale price at closing. Claim deadlines do not wipe out a lien (C.R.S. 15-12-803(3)(a)).
• Check who lives there. The PR may leave real property with the person presumptively entitled to it unless the PR needs it for administration (C.R.S. 15-12-709). If an heir lives in the house, talk before you list.
• Read the will. It may restrict what you can do (C.R.S. 15-12-715(1)).

Where the sale money goes

Think of the sale proceeds as going through a funnel. They do not go straight to the heirs.

1. Costs of selling and any mortgage payoff come out first. These are real costs of getting the house sold.
2. Creditors and costs of administration come next. The law sets an order: costs of administration, then funeral expenses, then certain tax debts, then last-illness medical expenses, then other claims (C.R.S. 15-12-805(1)). Successors take their shares “subject to all charges incident to administration, including the claims of creditors” (C.R.S. 15-12-901(3)).
3. A holdback. One year after death you begin paying allowed claims, after making provision for family allowances, pending claims, and unbarred claims that might still be presented (C.R.S. 15-12-807(1)). So keep some money in the estate until the claim windows close.
4. Heirs get the rest. With no will, the heirs share by the law's rules. With a will, by its terms. An appointment order is authority to distribute apparently intestate assets to the heirs if you know of no pending court fight over the will or your appointment (C.R.S. 15-12-703(2)).

If the will does not leave enough to go around, shares “abate” (shrink) in a set order: property not disposed of by the will first, then residuary devises, then general devises, then specific devises (C.R.S. 15-12-902(1)(a)). Do not worry about the names now; just know that a lawyer or the court can sort it out.

When it is all done, you give an accounting (JDF 942) to the people with an interest and close the estate with the court's closing forms (Colorado Judicial Branch, close an estate). Lesson 7 covers that.

Example with real numbers

Jordan is PR. The will leaves everything in equal thirds to Jordan, Priya and their cousin Marcus. The house sells for $400,000. These numbers are made up for teaching.

1. Costs of selling (agent, title, closing): $18,000. Left: $400,000 − $18,000 = $382,000.
2. Mortgage payoff to the lender: $82,000. Left: $382,000 − $82,000 = $300,000.
3. Jordan keeps $15,000 in the estate account for bills and claims that might still arrive. Left to split now: $300,000 − $15,000 = $285,000.
4. Equal thirds: $285,000 ÷ 3 = $95,000 each.
5. Later, if the holdback is not needed, the $15,000 is split too: $15,000 ÷ 3 = $5,000 more each.

The mistake to avoid: handing out the whole $300,000 ($100,000 each) on day one, then finding a $12,000 valid claim. Then the estate is short, and a PR who ignored priority can be personally liable (C.R.S. 15-12-807(2)).

A tax idea to ask about: step-up in basis

General information only. Our legal sources cover Colorado probate law, not tax law, so no tax rules, rates, or deadlines are given here. Ask a tax professional about your situation.

The idea. Basis is the starting number used to measure a taxable gain when you sell something. If you sell for more than basis, the difference is a gain. A common rule of thumb is that property you inherit may start with a basis near its value on the date of death instead of what the dead person originally paid. People call that a step-up in basis (the starting number steps up). This is why a date-of-death appraisal can matter.

Illustration only, made up. Suppose the owner bought the house for $120,000 long ago. On the date of death an appraiser says it was worth $380,000. Priya's family sells for $400,000.

• If the starting number were the old price: $400,000 − $120,000 = $280,000 of gain to measure.
• If the starting number is the date-of-death value: $400,000 − $380,000 = $20,000 of gain to measure.

The gap is large, so the question is worth asking a tax professional. Whether and how this applies to a given estate, what tax is owed, and what returns are due is for that professional to say.

What our sources do not tell us: what a particular title company requires, how the Fiduciaries' Powers Act words the sale power, and any tax rules. Ask.