Laws on Property Named in a Will Being Sold Before the Person Dies
Settling wills can be a difficult and highly emotional process. Feuds can erupt between beneficiaries if wills are changed or property is sold to someone other than the will's beneficiary. Little can be done about the latter. While the property owner is alive, he can do what he wishes with the property, even if it is named in the will to be passed on to a loved one.
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Property Sold To an Outside Party
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Sometimes, the owner of a piece of property will sell it before her death, even if she named a child or other beneficiary in her will as the recipient of that property. In cases like this, property will usually be sold to a third party, or someone outside the family or potential inheritors. In such cases, that property effectively no longer exists in the will. You can't bequeath something you no longer own. Ownership of the property belongs to the purchaser and will be ignored by the executor.
Property Sold To the Beneficiary Before Death
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Selling property before death is one way to avoid estate tax. It is not foolproof though, as the sale is still subject to land transfer tax and capital gains tax. If you do this, update your will once the sale is completed.
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Giving Property as a Gift Before Death
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Giving property as a gift to the beneficiary of a will also negates it from the execution of the will upon death. With the property no longer a part of the estate, inheritance taxes can be avoided. However gifts over the federal threshold ($13,000 annually as of 2011) are subject to gift tax, payable by the donor.
Contesting a Will
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If property named in a will to go to two or more recipients in a joint trust is disposed of, especially to only one of those recipients, prior to death, the other named recipient(s) may try to contest the will when the decedent passes. The person will most likely lose the case; the property was no longer the decedent's to bequeath at the time of death. Still, if you purchase or receive property as a gift that was to be left to you and others in a will, encourage your benefactor to change the will. If he does not, be prepared to hire a good lawyer in case the will is contested.
Check Your State's Laws
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Estate laws, as well as inheritance, capital gains and income tax laws vary from state to state. Always check with estate lawyers and tax accountants in your jurisdiction to decide how best to dispose of property.
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