When a will or trust beneficiary lives in an inherited house, and other beneficiaries claim a right to a share of that house, the situation often devolves into a trust and probate dispute and litigation.
The problem usually starts with a simple fact pattern. A parent dies. Under the parent’s estate plan, the family home will pass to two or more children, or into a trust for multiple beneficiaries. But one or more beneficiaries stay in the house and refuse to leave. The others want to know what happens next.
Sometimes everyone agrees that the beneficiary may stay for a while. The siblings in the house may say they are keeping the property secure, paying utilities, or waiting for the estate or trust administration to be completed.
But as months pass, the questions get harder. Should the sibling in the house be paying rent? Can the others force a sale? What if mortgage, taxes, insurance, and other costs are still being paid from estate or trust funds? In some cases, beneficiaries may even feel that a sibling stole my inheritance by refusing to cooperate or preventing a fair distribution of estate assets. What if the occupant refuses to leave but also cannot afford to buy out the other beneficiaries?
In California, the answer to these questions may depend on who owns the property, how title is held, whether the house is part of an active probate estate or held in a trust, and whether the person in possession is acting as a co-owner, a beneficiary, or both.
Trust and estate litigation may arise when parties disagree on what their rights are and whether their rights are being violated. In those cases, a probate court action may be needed to resolve the dispute.
Start with the ownership structure
The first question is not whether the arrangement feels unfair. The first question is who legally owns the property right now.
If the house is still in a probate estate, then the personal representative, that is, the court-appointed executor or administrator, controls it until the court authorizes distribution.
The same is true if the property is held in a trust. The trustee must fairly distribution the trust assets in a timely fashion. The trustee may not be able to simply wait until the beneficiary is willing to leave.
The role of the personal representative or of a trustee is that of a fiduciary. This means that in most cases they must act first and foremost for the benefit of the estate or trust and all beneficiaries, and not for their own interests or that of a select group of beneficiaries.
Beneficiaries do not yet own separate shares outright while the probate process continues, or while the trust is still being administered. During these periods, the fiduciary must preserve the assets for the estate or trust as a whole. Questions often arise about whether a trustee remove a beneficiary from a trust or limit access to estate property before distribution is complete. And if one beneficiary moves in and uses the property while the estate or trustee is paying the property costs, the fiduciary may be breaching his or her duties. California courts have recognized that a personal representative or trustee can face exposure where real property is not reasonably rented or managed for the benefit of all beneficiaries.
If the house has already been distributed to multiple beneficiaries, then those beneficiaries may become co-owners. At that point, the dispute often becomes a co-ownership and partition problem. California’s partition statutes give a co-owner the right to seek partition of jointly owned real property. This usually means that the court may order a sale and division of proceeds unless one party is able to buy out the others. The statutory right to partition is broad.
If one beneficiary or set of beneficiaries lives in the house, do they owe rent to the others?
Under California co-tenancy law, a co-owner in possession generally does not owe rent to other co-owners simply because they are living in the property, unless there is some agreement between them.
That means if three siblings inherit a house equally, for example, and one moves in, the other two do not automatically get your inheritance through monthly rent payments just because they are not living there.
However, as discussed above, a beneficiary may not yet be a co-owner until the probate or trust administration is completed. And in the meantime, the personal representative or trustee cannot give one beneficiary special treatment at the expense of the others. In other words, a fiduciary cannot simply let one beneficiary occupy trust property indefinitely, without paying rent, if doing so harms the interests of the others.
In these cases, the fiduciary may need to seek a court order requiring the beneficiary to pay rent, either directly or from their own share of the assets. The fiduciary may also seek an order authorizing him or her to commence eviction proceedings against the beneficiary.
Rent offsets and equitable accounting
Even though rent is not automatic between co-owners or beneficiaries, the court still has broad equitable power when it comes time to divide proceeds.
This is where parties often focus too narrowly on the question, “Is rent owed?” A more useful question is “What credits and offsets should apply when the property is sold?”
For example, if the beneficiary in possession paid the property taxes and insurance for three years, they may seek contribution or reimbursement from the others. California courts have long recognized contribution principles among co-owners or beneficiaries for certain costs connected to preserving the property.
On the other hand, if that same beneficiary had exclusive possession and substantial benefit from living in the property while others could not use the property, the non-occupying co-owners and beneficiaries may argue for a rental value offset – often to be paid from the occupying beneficiary’s share of the estate or trust assets.
Estate and trust cases are often different from simple co-ownership cases
If the property is in an estate or trust, the analysis shifts from pure co-tenant law to fiduciary law.
A fiduciary holds legal title on behalf of the estate or trust, and must act impartially toward all beneficiaries. If the fiduciary allows one beneficiary to live in the house for free, especially if the trustee is that same beneficiary, the others may have claims for breach of fiduciary duty. They may argue that the personal representative or trustee reduced the value of the assets by allowing uncompensated use, by failing to market or rent the property, or by favoring one beneficiary at the expense of the others.
That is where surcharge becomes important. A surcharge is a personal monetary charge against a fiduciary for losses caused by breach of duty. California estate and trust cases recognize surcharge as a remedy when a fiduciary’s conduct diminishes the value of the assets or fails to maximize the income of the assets, that is, to make the assets productive.
A surcharge may be available where the fiduciary allows a beneficiary to remain in the property at the expense at the others. Often it may be the fiduciary who refuses to leave the property. In those cases, the court may consider suspending and removing the fiduciary, as well as surcharging the fiduciary for the damage caused to the estate or trust.
Final thoughts
A beneficiary living in inherited house does not automatically have the right to stay there indefinitely, and the other beneficiaries are not powerless to protect their rights. California law gives co-owners and beneficiaries tools to force a sale, to seek equitable offsets, and to hold personal representatives or trustees personally accountable when one beneficiary’s use of the property comes at everyone else’s expense.
If you are dealing with a beneficiary living in inherited house situation in California, and the beneficiary refuses to leave, then Trust Law Partners can help evaluate whether the strongest path may be a partition action or an estate or trust petition, and whether you may have available remedies including surcharge and removal of the fiduciary.
Call Trust Law Partners today for a free consultation at 833-982-2079.