The Ins and Outs of Estate Sales
Estate sales refer to the sale of real property, personal property, or a business that is conducted by a fiduciary, usually a personal representative, in accordance with an order of the Probate Court or in accordance with local laws, customs, and procedures. It is not the sale of goods and/or services to be sold and in turn, bought at a retail or a wholesale venue. Furthermore, estate and estate sales are not the sale of a debt owed to a creditor by a debtor. These types of sales are used as a means of liquidating or converting property into liquidity.
Unlike a normal sale where a party can simply list something on Craigslist, use social media, display its property on eBay or hold a garage sale, estate sales have to be done in a more methodical manner. The primary reason for this is the need to allow an estate fiduciary to obtain consent and/or approval of the Probate Court prior to the sale whenever possible . This is not to say that approval is not required; in fact, the Probate Court’s approval may be obtained after the fact in most cases. However, in order to avoid any post-sale complications, having the review prior to consummation is always a better option. In addition, if there is a court approved procedure in place (‘local rules" and/or a "standing order"), the estate fiduciary ("a personal representative") has to abide by those rules. Abiding by the local rules is especially important in estates that are open to public scrutiny, are somewhat large, involve multiple layers and levels of beneficiaries or creditors. There are many different situations where an estate sale will occur. A few examples include the following: The above examples are just a few of the many ways/instances where an estate sale may occur.
Laws Governing Estate Sales
Estate sale laws are quite complex and can vary from municipality to municipality. Many states have specific laws that govern laws for both estate sales and garage sales. Laws governing estate sales often fall under laws that are already in place for garage sales. However, it is important for you to be familiar with estate sale laws in your area, whether you plan to hold the sale yourself or hire an estate sale service.
For example, many municipalities require you to apply for a business license to hold an estate sale. This license often must be displayed at the sale. Zoning laws may also apply to estate sales. For instance, in some areas estate sales may not be conducted in residential neighborhoods. Additionally, burden of proof generally falls on the homeowner to prove that the goods at the sale do not originate from local stores. Some municipalities restrict the number of estate sales you may hold per year (this limitation can be as low as one per year). Ordinances also may be in place that limit the number of days each estate sale may last, and what hours they are permitted. Some municipalities require a letter to be sent out to neighbors notifying them that an estate sale is planned in their area.
There are many other estate sale laws that can come into play, so be cognizant of the ones in your area. If you hire an estate sale company, they should be familiar with estate sale laws. However, if you plan to hold the sale yourself, you should contact your municipality’s zoning board, sheriff’s office or tax office to find out about the estate sale laws in your area.
Estate Sale Versus Garage Sale – Distinctions to Note
Though estate sales and garage sales might seem like the same thing at first, differences abound. In general, home garages are considered part of the home, especially for real estate tax purposes. Garage sales are generally run by the owners of the house, and while they may include some "estate sale" items, they will not include such significant items as real estate and vehicles. An estate sale company is hired to sell specific items; a family member usually runs a garage sale. In an estate sale, the company will organize an inventory of items for sale, numbering and tagging them with separate price tags to keep track of sale items. The items are then grouped and displayed, often in a way that emulates their original positions in the home. Estate sale organizers will move furniture and big-ticket items to areas where buyers can view them. The home is typically set up as it was used; there is no need to move anything, but everything is organized, and old newspapers and other unnecessary papers are moved out of sight. A common practice is for retail salespeople to be hired to help check in and out customers. Often, more work is done on the morning of retirement sales (i.e. bake sales) and immediate family assistance is sought after large furniture items that must be removed. The general rule is that if you schedule an estate sale, you cannot make it a garage sale. Christus in Houston, Texas points out that estate sales may take place in "subdivisions that either restrict garage sales or do not allow them." In these subdivisions, garage sales that are not run by professionals are not allowed because of restrictions in the covenants, conditions and restrictions. If you do have a garage sale, the car parking space in front of your house is not considered a common element. As such, your garage sale is your sale.
Regulatory Contracts for Estate Sales
Contracts and agreements are important aspects of an estate sale process. Written agreements are intended to define the working relationship between the estate sale company and the estate. They address expectations. They spell out who is responsible for what and also include important provisions to ensure that estate assets are protected.
Estate sales typically involve a professional company and a party interested in selling its property. Because of this relationship, estate sale agreements will contain a number of important contract provisions. The agreement should address the compensation to be paid the estate sale company, the responsibilities of the company, the responsibilities of the estate, settlement and legal issues.
Many estate sale companies are reluctant to enter into written agreements with the estate. Experienced and reputable estate sale companies will have no problem entering into written agreements with estates. Prospective clients should have the ability to review the agreement before engagement. People receiving a verbal description of an agreement should remember that this is the estate sale company’s understanding of the agreement requirements and not necessarily what the written agreement states. All parties should be aware of what they are reading and signing and are encouraged to have the contract reviewed by a legal professional.
The estate sale company’s compensation for services to the estate should be clearly addressed in the agreement. Although most estate sale companies employ the standard "33.3%" commission, it is important for the contract to set forth how commissions will be calculated over and above the 33.3%:
This agreement for (a regular estate sale or an auction) with (name of Company) is for (a real property estate sale or personal property sale or a real property auction or personal property auction).
____ The Company agrees to accept a fee of 33.3% of the Sale price of all items purchased at the Sale/ Auction or by the Purchasers.
____ The Sale includes an additional charge to Purchasers if applicable ___ to ___%. If Purchasers are assisting in the Sale, then (a regular estate sale or an auction) may be applied. The Company will receive ___% of said charge. This charge will be used to cover sale expenses and expenses relating to the liquidating of the property in the estate. These charges will be accounted for separately on the accounting statement at settlement.
___ The Company will be entitled to 100% of charges placed on delivery and auction ether charges or any other charges or services that Company provides at an additional cost.
The responsibilities of the estate sale company should be clearly stated in the agreement. There are several things that are important for an estate to understand regarding its sale company:
The responsibilities of the estate should also be clearly stated. Although the estate sale company will have the burden of preparing for the sale, the estate will have its own responsibilities.
Settlement is an extremely important part of an estate sale. Most estate sale companies require sales to be settled at the time of or shortly after the sale. If the sales proceeds are less than expected, the estate sale company will not have completed its responsibility to the estate. In addition, the estate may have real property or personal property remaining that will have to be moved by the estate sale company or the estate. If this is the case, the estate should be weary of estate sale companies that require immediate settlement. The company will not be able to account for its charges until the estate sale is complete. If the estate sale company is expecting immediate settlement, charges can easily reach the level that will result in a loss to the estate.
All estate sale companies should provide the estate with an account statement detailing the charges and credits to the estate related to a sale. Standard charges should be addressed in detail in the agreement. Any unusual charges or credits should be outlined in the agreement so that there are no misunderstandings when accounting statements are presented.
Estates should be aware that their estate sale companies do not handle the legal aspects of sale. Many estates have credit cards paid for items sold at an estate sale. In these circumstances, the estate needs to be clear about who will be paying the credit card bills once it engages the company.
The Applicability of Consumer Protection Statutes to Estate Sales
Consumer protection laws apply to estate sales just like any other consumer purchases made on a day-to-day basis. These laws ensure sellers are honest and upfront about what they are selling, as well as protecting buyers so they are not subject to unexpected costs or problems after the fact. Most large retailers are required to provide consumers with refunds within a certain period of time if they are not satisfied with the goods purchased. They must also clearly label the prices of individual goods and any additional fees included in that purchase. In the estate sale arena, the majority of these return policies and labeling issues do not apply, even though it is always a good idea to provide that service anyway. Estate sales still fall under the general consumer protection laws in that goods sold to individuals must be in working or good condition. If not, the seller cannot hide the defects of the goods they wish to sell. They need to clearly disclose any damages, flaws or missing parts so the buyer knows what to expect when making the purchase. As with any other used purchase, it is important to honestly represent the items to be auctioned or sold during the estate sale. A buyer may always expect some sort of wear for everything being sold. However , they should know in advance about major flaws in each item so they are not caught by surprise when making the purchase. Buyers should also expect to be able to inspect goods before making the decision to purchase them. The seller may limit the inspections so a buyer cannot remove items from the sale. However, they should at least allow buyers to run tests on electronics and appliances to ensure everything works as expected. It is also important for sellers of artwork to allow buyers to determine whether the work is a print, forged or real to ensure they are getting what is represented by the seller. Sellers should also be open to allowing certain quantities to be purchased in bulk, depending on what the buyer intends to use it for. For example, a baker should be able to purchase the used kitchen equipment without being told she is only able to buy half of what she needs. This could unfairly inflate the price of what is being sold to the buyer. Allowing the buyer to purchase as much broken furniture or mismatched items as they need to complete their décor should also be considered. Honesty is key when selling any used or broken items at an estate sale.
Tax Treatment of Estate Sales
When it comes to taxes, the question really is do I have to pay taxes? Yes indeed is the answer for personal items sold in an estate sale. You see estate sales involve the sale of personal property. And when it comes to income tax and capital gains tax on that property the IRS wants you to know they are your tax liabilities. Sales tax on other hand is variable depending on where you are living at the time of the estate sale. Always check with your local tax office to find out about local tax liabilities.
Other taxes on the local level may include VAT tax or other taxes capturing the taxable sale of new goods and services. On income tax, you likely will cut a check to the IRS for the taxes owed with your tax filing or you may be getting a tax refund if the estate already paid income tax and estate tax on behalf of the seller. Often if you are selling an estate sale in 2015 for a 2014 estate those taxes have been taken care of by the estate. Where the decedents tax return 1041 is filed with a $0.00 balance due. So, good news it is possible the estate may have already paid your tax liabilities. Bad news is if you have not yet filed that 1041 if you are the fiduciary or you have not filed your 1040 as beneficiary you will need to do so and pay the taxes due.
We all hear Greenwich is wealthy. Well real property and bank accounts are the largest assets found in estates for family’s of modest wealth to that of people on the Forbes wealthy list. Tax liability regarding bank accounts are determined by source of money. If the monies belong to the decedent’s revocable trust an estate tax may be due. If the bank account belongs to a decedent but it is joint with another not a trustee situation then you are facing income tax liability. As for property its hailed from the city of Greenwich which believes it has a right to estate tax on the real property which it will track down. Real property tax is an area of hidden money. You sell an estate sale on Wednesday and the buyer pays you $50,000 cash with direct physical access to the property itself. Do you honestly believe that the city of Greenwich won’t find out about the sale on Thursday? You didn’t offer them cash, did you? On the Connecticut side of the line the tax man too will come knocking.
Sales tax is another territory that you want to be ready to face. If you have an estate sale you want to charge a 0% sales tax on the personal property sold. No matter what the city of Stamford will say. And if you are in fact a business then sales tax will be a reality. Do contact your accountant or financial professional about reporting your sale of personal items sold.
Although we don’t want you to we are telling you now, don’t forget the personal property tax. Just because you are holding an estate sale doesn’t mean you won’t owe property tax liability to your town like Stamford.
Where home owners can get in trouble is failing to file a tax registration form or filing the form incorrectly. Don’t play hopscotch with the tax man. Get it right the first time. For NYC or NYC suburb estate sale accounts go here.
Purchase documents. Welcome to the world of state income tax liability. Today’s states are looking for every way possible to capture resident dollars as well as the dollars of visitors to the state. If you don’t file a sales or employment tax return you might have the tax man coming to your house door. The tax man is a scary person so avoid him now while you can.
And check with your accountant for other potential tax liabilities from your estate sale. This is not one area where you want to make a mistake.
Selecting an Estate Sale Professional
When selecting the right estate sale company for your needs, it is essential to do your homework. You want to be sure the company you choose is properly licensed and bonded and that the owner is a licensed real estate agent. Verify the address of the company and ask for an identification of the owner. You may also want to ask for three references from clients who used the same company for their estate sales. The company should provide you with an agreement that details the services that they are going to provide. Other things to consider when you find a company that you want to use includes whether or not the company will be setting up sales on their own property at the same time as the sale, if they are members of the Better Business Bureau or the National Association of Estate Liquiationists, how the company handles returns and refunds, and how the company protects valuables. Some things that may set estate sale companies apart include memberships in the National Association of Estate Liquidators, the American Society of Estate Liquidators and Appraisers, and the Better Business Bureau, memberships in local retail associations such as the Michigan Retail Association, membership in the American Society of Estate Planner, funding through local Trust Accounts at banks such as Morgan Stanley, and whether or not their staff is fully insured. You also want to know if the company has a business license.
Estate Sale Legal Concerns
It is a buyer beware world. So unless you are the estate executor or administrator, you will be taking part in an estate sale "as is." The estate representative should tell you everything that he or she knows about the items being sold. An estate executor has a fiduciary obligation to the estate. Don’t let that person sell you a piece of used furniture without telling you everything they know (or don’t know) about it.
One of the most serious legal questions facing executors and administrators, and one of the most frequently litigated issues, is whether the executors sold property of the estate to themselves or family members and friends at less than fair market value. Executors owe a fiduciary duty to the estate and its beneficiaries, and a violation can expose the executor or administrator to breach of fiduciary duty lawsuits and, in extreme cases, even removal from the position . One common legal problem is that the executor sells property that clearly belonged to the decedent to himself at auction (yes, even legitimate auctions), rather than going through the trouble of a private sale or public auction. Another legal issue that arises is how much the estate should receive for the items sold. For instance, executors who sell household goods, paintings or jewelry at a yard or rummage sale should do some research into the fair market value of the items and set minimum prices or consult with a certified appraiser.
A more common legal issue is the misrepresentation of items sold. For example, is the signed painting actually a piece sold by a prolific artist? Is the coin you purchased from the estate representative signed by the artist it purports to be? Does the estate represent that the rug you’re purchasing was made from authentic Persian materials? Clearly, executors should provide full disclosure of items that fail to meet the above standards. If not, the estate can be held liable for fraud or negligent misrepresentation.