Fiduciaries and real estate assets: Key considerations

Fiduciaries entrusted with managing real estate assets must navigate a potential minefield of risks, and understanding those risks is essential. These four considerations can help trustees, personal representatives, and other fiduciaries avoid common pitfalls.

1. Confirm the value and titling of the real estate asset

It may seem obvious, but 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. Agents will typically perform these at no cost.

You may think ownership of the property is self-explanatory, but that’s not always the case. We’ve seen plenty of situations in which the family is certain “Mom owns the house.” Often, however, conducting a title search reveals that Dad’s trust owns the house, and the title wasn’t changed when Dad passed away years ago. Surprises like this, related to how a property is actually titled, can easily add time and expense for the 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. Rather, it means securing and maintaining the property so it doesn’t diminish in value. This includes 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, is not a requirement of a fiduciary.

Fiduciaries have a duty to take reasonable steps to control and protect the trust property. 

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, and vacant land. 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 particular tasks, such as soil sampling.

4. Address additional concerns

Many real estate issues are easily overlooked by fiduciaries who aren’t experts. Maintaining adequate insurance on the property is one issue we commonly see, and it’s critical. But obtaining insurance for a vacant property can be difficult; finding a provider willing to cover a vacant property at a reasonable price requires shopping around.

Many real estate issues are easily overlooked by fiduciaries who aren’t experts.

Other common action items to address include:

• Ensuring bills and taxes are paid promptly.
• Winterizing the property if vacant.
• Keeping up with landscaping.
• Snow removal.
• Mail forwarding.

When it comes to managing real estate, fiduciaries have a long to-do list to carry out their responsibilities and minimize the inherent risks. While the items listed here represent a few common examples, each property brings its own unique set of needs and challenges. Working with a professional fiduciary can help. Contact us to learn more about how.