Case Study: High Property Prices Lead to More Probate Disputes
Joyce and Michael* bought several apartment buildings many years ago in San Diego. By the time they passed away recently, the value of those properties increased exponentially and were worth close to $10 million.
The property, while valuable, was the only real asset in Joyce and Michael’s estate. Because there is no liquidity in real estate, the only way to divide the estate among their heirs was to sell the apartments. Unfortunately, their beneficiaries disagreed about the property’s value and ended up spending much of what they inherited in costly and emotionally charged litigation.
The high-priced real estate market has significantly contributed to more litigation among beneficiaries, we’re noting. Considering that, in June 2024, San Diego home prices were up 10% compared to the same month the previous year and the median home price is $1 million, there is a lot of money at stake. When there is more to gain financially, beneficiaries tend to be more aggressive in contesting wills or challenging executors’ or trustees’ decisions. Of course, grief over losing a loved one and family dynamics can fuel these disputes.
Probate litigation is a legal process that arises when there are disputes over the administration of a deceased person’s estate. This type of litigation can be financially draining, as legal fees and court costs accumulate over time. The emotional toll is also significant, as family members may find themselves embroiled in prolonged and bitter conflicts during a period of mourning. Additionally, probate litigation can take years to resolve, prolonging the uncertainty and stress for all involved and delaying the final distribution of the estate's assets, which can exacerbate family tensions and financial burdens.
Fortunately, there are steps to take to ensure beneficiaries inherit as much of your real estate portfolio wealth as possible in a smooth transition:
- Create a Comprehensive Estate Plan: One of the most effective ways to prevent disputes is to create a detailed and clear estate plan free of ambiguities for beneficiaries to contest. Leave detailed instructions regarding your wishes for the property, including if it should be sold and the proceeds divided among heirs or if it should be held in trust or jointly owned by the beneficiaries to maintain, manage and/or rent out.
- Communicate: Clear and open communication with your beneficiaries about your estate plan and your wishes can help manage expectations and reduce the likelihood of disputes. While it may be uncomfortable, discussing your real property decisions with your heirs can prevent surprises and conflicts after your death.
- Consider a Trust: Establishing a trust can help avoid probate and reduce the chances of disputes.
- Clearly Define Property Distribution: Plainly specifying who gets what, especially when it comes to high-value assets like real estate, is crucial.
- Regularly Update the Estate Plan: Changes in finances or in life, such as marriages, divorces, births or deaths, should trigger updates to your estate plan. Keeping your estate plan current ensures that it reflects your most recent wishes, your current financial and family situation and your real estate holdings. This reduces the chances of disputes arising from outdated information.
- Consider Including a No-Contest Clause: A no-contest clause can be included in a will or trust to discourage beneficiaries from challenging the estate plan. This clause typically states that any beneficiary who contests the will or trust will forfeit their inheritance.
- Appoint a Competent Executor or Trustee: Choose an executor or trustee who is impartial, competent and trustworthy and also has experience handling a real estate portfolio.
- Seek Professional Legal Advice: Engaging an experienced estate planning attorney can help ensure that your estate plan is legally sound and minimizes the risk of litigation. A legal professional can also help draft the necessary documents and provide advice tailored to your specific situation, including real property considerations.
For more information, contact SCMV Shareholder Sarah M. Shekhter at shekhter@scmv.com or your SCMV attorney.
*Names and some details have been changed to protect client privacy.