Fiduciaries entrusted with managing real estate assets must navigate a potential minefield of risks, including handling legal requirements and securing and maintaining the properties. Understanding the range of potential risks is essential. These considerations can help trustees, personal representatives, and other fiduciaries avoid common pitfalls.
1. Confirm the value and titling of the real estate asset
As a trustee, it’s imperative to fully understand the value of the real estate you’re dealing with and how it’s titled.
The best way to determine real estate value is through a property appraisal. Appraisals are inexpensive and can be completed relatively quickly. Another less formal option is to have a comparative market analysis completed by a real estate agent, which is typically performed at no cost.
Ownership of real estate may seem self-explanatory, but that’s not always the case. You may experience a situation where the family says “Mom owns the house;” however a title search reveals that Dad’s trust owns the house, and the title wasn’t changed when Dad passed away years ago. Surprises related to how a property is titled can add time and expense to trust administration.
2. Safeguard the real estate asset
Fiduciaries have a duty to take reasonable steps to control and protect the trust property. This doesn’t necessarily mean improving it, but it does mean securing and maintaining the property in order to not diminish the value. This could include changing locks for the home or building, and making certain all valuables have been collected and secured. Regularly checking on the property, inspecting, and performing any repairs or maintenance is also important. Renovating or making capital improvements to the property — upgrading a kitchen or bathroom, for example — isn’t a requirement of a fiduciary.
3. Know how to handle nontraditional real estate
Nontraditional real estate includes anything that isn’t a residential dwelling — for example, commercial spaces such as fast-food franchises or clothing stores, farmland, vacant land, and international real estate. As real estate investments become more popular, individuals’ portfolios increasingly include these types of properties.
These holdings present unique challenges for fiduciaries. Commercial entities often lease the space, which means the fiduciary is responsible not only to understand the lease terms and the business of the tenant, but also to ensure the trust receives reasonable rent and that the apportionment of expenses between the trust and the business or tenant is appropriate.
It’s also important for fiduciaries to understand any environmental impacts of the business or property. Farmland, for instance, often involves leases in addition to very specific tasks, such as soil sampling.
A fiduciary must be flexible and diligent when dealing with assets outside of the country. International real estate brings with it issues such as ownership paperwork in a foreign language, a different transfer system with unique terminology, and increased complexity of typical administrative tasks due to physical distance.
4. Address any additional concerns
Many real estate duties are easily overlooked by fiduciaries who aren’t experts. Maintaining adequate insurance on the property is a critical issue. If you’re managing vacant property, obtaining insurance can be difficult; finding a provider willing to cover a vacant property at a reasonable price usually requires shopping around. Additionally, fewer insurance providers are covering property in Florida and other high-risk areas. As a fiduciary, you should shop around for the best price, but also carefully read and understand what a policy does and doesn’t cover.
Other common items to address include:
- Ensuring bills and taxes are paid promptly.
- Winterizing the property if vacant.
- Keeping up with landscaping.
- Snow removal.
- Mail forwarding.
If you’re a fiduciary tasked with managing real estate, this is a small sample of the items that should be on your “to-do” list as you carry out your responsibilities. If you need help handling the inherent risks and complications of managing real estate assets, reach out and let us know how we can help.
