Serving as the executor or administrator of an estate is hard enough without any special requirements, but many testators will include complicated provisions in their estate plan that make your job even harder.
For example, if there is real estate, such as a family home or possibly farm acreage held by the estate, the deceased individual may have included instructions to offer one beneficiary or possibly several heirs the right of first refusal regarding that property.
Although the expectation is that you as executor will sell the property, that right of first refusal will impact how you handle the sales process during estate administration.
How an heir can exercise their right of first refusal
When you review the terms of the estate plan or last will and realize that family members may have the option of purchasing the property from the estate, it is a good idea to notify those individuals of that right. Chances are good that they already know, but telling them early in the administration process gives them an opportunity to look at their finances and explore financing options.
While they look into things on their end, you will likely want to work with a real estate professional to appraise the property and set a fair market value for it. In general, your position as executor means that you should make every reasonable effort to maximize the value of the estate and its assets for the benefit of the heirs.
Selling the family home to one descendant of the testator for a substantially below-market-value price would deprive other members of the family of their share of the estate’s assets by diminishing its overall value. Therefore, unless the testator explicitly instructed otherwise, you will generally need to demand a fair market value offer from anyone hoping to make an offer based on their right of first refusal.
Don’t list the property until you’ve resolved things
If a family member with the right of first refusal makes a fair market value offer, you should agree to sell to them before ever listing the property on the open market. If they do not wish to use that right or if their offer is far below what is reasonable and they will not negotiate, you will then have the option to list and sell the property.
Handling more complex estate administration issues like the right of first refusal opens the doorway for financial and legal liability for you as an administrator. Getting the help you need to handle this process the right way will protect you from future consequences.