Caution is Needed When Entering Into a Contract on Behalf of a Trust or Estate

shutterstock_204507106-300x254One of the primary assets which may be owned by a trust or estate is real estate.  This asset may be in the form of residential real property or commercial property.  Also, other types of similar assets should be included in the discussion.  A condominium unit is real property but is typically in the form of a residential apartment.  A cooperative apartment, while appearing to be real estate, is, in fact, personal property.  The cooperative ownership is really shares of stock in a cooperative corporation, which entitles the owner to a proprietary lease to the apartment unit.

During the course of estate settlement, a fiduciary such as a trustee or executor or administrator will need to contend with issues surrounding the decedent’s ownership of these interests.  It may be that a property is occupied by a third party or family member who needs to be evicted.  Thus, estate litigation in the Surrogate’s Court or other Court may need to be commenced.  Another problem may involve discrepancies in the title of ownership and claims by third parties against the property interests.  Various liens in the form of judgments or unpaid taxes or unpaid mortgages may complicate the estate administration.

It is very common that the estate fiduciary will decide to sell the property interests and distribute the net proceeds to estate beneficiaries.  The ability of the fiduciary to sell property may be limited or constrained based upon the existence of a Last Will or the authority provided to a fiduciary by the Surrogate’s Court in letters testamentary or letters of administration.

Regardless of the particular situation, caution should also be observed when purchasing or selling property in a trust or estate situation.  As noted, restrictions or limitations may be contained in a Will or Trust provisions or a Court Order.  Also, basic provisions in a sale or purchase contract may have different applications compared with the effects on an individual purchaser or seller.  Such a situation occurred in a Manhattan estate entitled Matter of Siegel, decided by Manhattan Surrogate Hillary Gingold on September 28, 2023.  In Siegel, the Trustee of a Living Trust entered into a contract to purchase a Manhattan cooperative apartment from an estate.  The Trustee of the Living Trust had intended to live in the cooperative apartment.  However, the trustee died shortly after the contract was signed.

As it turned out, the cooperative corporation had a rule that while a cooperative apartment could be purchased by a Trust, the apartment had to have an individual occupant.  When the Trust attempted to cancel the contract due to the death of the individual trustee, the selling estate refused to return the down payment.  The seller’s position, which was adopted by the Court, was that the Trust itself was the purchaser and had an obligation to close the transaction.  The fact that the trustee died did not abrogate the purchaser Trust’s obligation.  Moreover, the provisions in the contract dealing with the death of the purchaser were not applicable to the purchaser Trust.  The Court found that the Trust breached the contract and that the seller estate was entitled to retain the contract deposit as liquidated damages.  In hindsight, the contract should have contained language that the contract could be cancelled if the individual trustee died before closing.

As can be seen from Siegel, there are many technicalities and complexities regarding estate settlement and trust administration.  I have been advising clients in trust and estate matters and real estate issues for over forty (40) years.  Do you have a question regarding a trust or estate matter?  Call Me Now for a free confidential review of your estate matter.  We offer reasonable and flexible fee arrangements and personal representation.

New York Trusts and Estates Attorney Jules Martin Haas has helped many clients over the past 40 years resolve issues relating to guardianship and probate and estate settlement throughout New York City including the Bronx, Queens, Brooklyn, Manhattan, Nassau and Suffolk County.  If you or someone you know has any questions regarding these matters, please contact me at (212) 355-2575 for an initial free consultation.

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