Legal estate question: Renovations to a condo while it is still part of the estate

My wife’s mother died recently. My wife is the executor named in the will, and is the sole heir. We have not yet been to county probate to get a testamentary letter, but have an appointment for Jan 10. My MIL had a condo, solely in her name, which will be retitled to my wife after we go through the necessary process. We expect that process could take weeks, possibly months.

We are considering doing some renovations to the condo in anticipation of selling it after it is retitled in my wife’s name.

Question 1: Is it acceptable to pay for these renovations out of estate funds? The will does not stipulate that the property should be sold, only that it passes to my wife. Therefore the estate does not have a specific interest in renovating the unit. It would not benefit from these renovations; the benefit would be to the heir. (However, those funds, if not spent on condo renovations, would pass to the heir anyway.)

Question 2: Should these renovations even be done before the title to the property passes? Supposed we pay for the renovations out of our own funds. Should we even be doing this while the property is in the estate?

We want to start as soon as possible to avoid having this property sit idle, and so we can be ready to sell ASAP.

From a practical standpoint, once the property is sold and accounts are settled, all the numbers end up in the same place no matter how we do this. So we feel this is in the spirit of the law, if not the letter. But we also don’t want to do anything that would be considered shady or outright illegal by the government.

So your planning on doing all the above without a probate attorney? I would think that should be the person to answer your questions, not a bunch of strangers on the internet. Most states require a probate attorney for the transfer of real property.

State is Virginia, probate attorney is not legally mandated.

Is your wife the only heir?

Yes. There are per stirpes stipulations in the event she did not survive her mother, but she did.

I think one problem may be if there is an issue with the title. It wouldn’t be fun to sink funds into a condo that had title issues. The probability is small, but not zero.

About a year ago I transferred a property from my parent’s trust to a beneficiary, and even though my parents owned the house for years, title insurance for the beneficiary was purchased. No issues, but if there are it is covered.

For that reason, transfer the property and then renovate.

These are really the kinds of questions you’re going to need an attorney to answer. A consultation should be cheap and any fees can be billed to the estate.

Yikes.

Do you see anyone challenging you? No? Then you can do whatever you want. Who’s going to complain?

It would be best to do the renovations while the condo is in probate so that the step-up value is as high as possible. Your wife will pay taxes on any value above what she receives the asset at. You want the value to be as high as possible while within the estate so that any increase in value afterwards in minimized.

For instance, say the condo’s current value is $200k. If it transfers to your wife, the step-up value is $200k and that becomes the base value to her. If she then fixes it up and sells it for $250k, she’ll owe taxes on the $50k increase. But if instead the estate fixes it up and transfers it to her, then the value to your wife is $250k. Your wife will get a $250k asset and won’t pay any taxes when it sells for $250k.

It would probably be best if the estate sold the condo after repairs rather than transferring it to your wife and then she sells. The estate is allowed to use estate funds to facilitate the sale of estate assets. If the estate fixes up the condo and sells it for $250k, your wife gets the $250k from the estate and there’s nothing to worry about.

The OP is the estate. It’s their money either way.

Be sure to carefully consider any renovations you do with consideration to the payback. There’s no sense in doing a $50k kitchen renovation that only increases the value by $25k. In addition, it’s a huge headache doing renovations. Even if extensive renovations are justified by the increase in value, there’s the aggravation and time of the whole renovation process to deal with. It may be better to just get a modest increase in value by doing some quick and easy improvements like carpet and painting so you can get out easily and quickly.

IANA estate lawyer, but my late wife was. AFAIK …

The step-up occurred on the date of death. There is no significance to the date the property is retitled to the heir(s). Whether the estate or the heir(s) pay to upgrade the property, all that expense also goes towards increasing basis. Provided they are improvements, not repairs. Per IRS, improvements raise basis dollar for dollar, but repairs do not affect basis at all. So if you do have something about the condo that is broken and needs fixing, be sure to upgrade it enough that you can straight-facedly say all the work was upgrade, not fix.


Separately to the above…
In general in most states, the courts are trying to keep this simple. As @Alessan said, if your wife is executor and sole heir, there’s nobody to complain, so even if you end up not quite doing everything according to Hoyle it’ll be fine. As long as you don’t cheat the IRS; those folks care.

Second comment my late wife said many, many times to many many people:
You (any you) gotta be stupid not to hire an attorney to help with this. It’s cheap insurance, and you’re not an expert. For a basic estate with one heir and a simple will, it’s not gonna cost a lot to get some solid advice and solid help. Consider it insurance against encumbered titles, IRS audits of the estate’s tax returns, etc.

The point that concerns me here is that the estate is not selling the property, and nothing in the will could be interpreted to say that it should be sold. I think it’s cleaner to sell it only after it’s retitled.

The value of the estate falls well under the federal estate tax exemption. There is no estate tax in my state. So I am not too worried about the IRS, as long as the final tax return and estate tax returns are in order. I have been doing her taxes for years; they are not complicated.

I will try not to be stupid. We are considering this. I want to use an attorney for experience and expertise, but I do not want to pay someone $200 an hour to fill out forms that I can do myself.

I’m in Virginia and was the Executor of my mother’s estate and I did not go through the process with an attorney. Her home needed renovations to the tune of $26,000 in anticipation of sale which were completed and paid for through Estate funds. This expenditure, along with others were submitted to Probate and approved as legitimate expenses to settle the estate.

Thank you, this is close to my situation. My only question for you is did the estate sell the home, or did the heir(s) sell the home after the title passed?

The below is a resource put out by the Virginia State Bar Association, and also listed as a source of self-help legal information on the VA court system’s official website (https://selfhelp.vacourts.gov/vacourts-self-help-probate-in-virginia) so it seems legit. If you or your spouse haven’t read it yet, perhaps you should. Seems to have some good legal information in it that might be relevant to y’all’s situation:

https://www.vba.org/page/guide_estates

Thank you for that. I am already familiar with it and have read most of the material it links to. I have also reviewed all of the probate forms it links to, and have filled out the relevant ones.

The Deed went to the Estate before the sale. I handled the sale as Executor and the proceeds from the sale were made payable in the name of the Estate and deposited into the Estate account. From there, I distributed funds to the heirs.

That part is a bit different. The renovations directly benefited the estate because the estate was selling the property and the renovations enhanced the marketability.