What is the independent administration of Estates Act?
The independent Administration of Estate Act (IAEA) is a series of laws allowing the personal representative to administer most aspects of the decedent’s estate without court supervision. The authority to administer the estate under the IAEA can be given by the decedents will or by the court upon the petition by the personal representative. It is generally done when the probate proceeding is initiated but can be done at any time during the proceedings (Cal. Prob. Code Section 10400 et seq.).
An estate cannot be administered under the IAEA if the decedents will prohibits it (Cal. Prob. Code Section 10450) or if an interested party provides court-approved good cause why it should not be administered under the IAEA. If the restriction is granted, the authority of the personal representative becomes “limited” rather than “full” (Cal. Prob. Code Section 10454(e).)
Can the personal representative’s authority under the IAEA be limited?
Yes. The court can grant the personal representative full or limited authority under the IAEA (Cal. Prob. Code Section 10454(a)). If the personal representative has limited authority, court supervision is required for the sale, exchange or granting of an option to purchase estate real property (Cal. Prob. Code Section 10501(b)). If the personal representative has full authority, court supervision for the sale, exchange or granting of an option is only required if the personal representative or estates attorney is the principal buying, exchange with or optioning the estate property, or, if objection are made to the Notice of Proposed Action (Cal. Prob. Code Section 10501(a)).
What is the difference between “limited” authority and “full” authority of a personal representative acting under the IAEA rules?
If the court grants only limited authority to the personal representative, he/she has the power to do all acts allowed under the IAEA rules except the power to: (1) sell real property, (2) exchange real property, (3) grant an option to purchase real property; or (4) borrow money with a loan secured by an encumbrance on real property (Cal. Prob. Code Section 10501(b)). With limited authority, court supervision is required.
On the other hand, full authority granted under the IAEA rules allows the personal representative to sell real property, exchange real property, grant an option to purchase real property, or borrow money with a loan secured by real property at his or her discretion (Cal. Prob. Code Section 10511, 10514, 10517). However, neither authority may be granted if the decedents will prohibit IAEA authority.
Are the price and terms prescribed by law when estate real property is being sold under the IAEA?
No. Under full authority to administer decedent’s estate, a sale of estate real property may be made at the price and on the terms determined be the personal representative. The sale is not subject to court supervision or the overbid process. The law requiring the price of estate real property to be at least 90 percent of the appraised value does not apply to sales under the IAEA. However, the personal representative still has a fiduciary duty to the beneficiaries/heirs of the decedent to maximize the estate’s assets. Additionally, the sale can be for cash or on credit (Cal. Prob. Code Section 10503).
Is the personal representative required to inform anyone of a possible sale of estate real property when it is being sold under the IAEA?
Yes. The personal representative must give a “Notice of Proposed Action” when selling estate real property without court supervision (Cal. Prob. Code Section 10510, 10511). The personal representative must inform the following persons and entities with an interest which may be affected by the proposed sale, unless they have waived in writing such notice or have provided written consent to the sale:
· Each person named in a will;
· Each known heir entitled by law to property of decedent dying without a will;
· Other interested persons requesting notice, such as creditors or beneficiaries of a trust; and
· The Attorney General, if any portion of the property is to go to the State
(Cal. Prob. Code Section 10581)
How does the personal representative notify the above-named parties and what information must be included in the Notice of Proposed Action?
The personal representative notifies the required parties, mentioned in the previous question, of the pending sale with a form called the “Notice of Proposed Action.” This form describes the terms upon which the personal representative proposes to take action on behalf of the estate, such as selling estate real property. The Notice of Proposed Action must include all of the following information:
· The name and mailing address of the personal representative
· The name and telephone number of the person to contact for additional information
· A reasonably specific description of the action to be taken, including a description of the property and the material terms of the sale, exchange or granting of an option to purchase property, including the price and amount or method of calculating any brokerage commissions; and
· The date on or after which the proposed action will occur
(Cal. Prob. Code Section 10585)
How should the Notice of Proposed Action be given?
The Notice of Proposed Action must be mailed or personally delivered to all persons entitled to receive it at least 15 days before the date the proposed action is to take place. If mailed, the notice must be addressed to the interested persons last known address and sent first class mail. The personal representative or the estates attorney will typically handle preparation and delivery of the Notice of Proposed Action to all appropriate partied (Cal. Prob. Code Section 10586).
How can a recipient of the Notice of Proposed Action object to the sale?
Anyone entitled to receive the Notice of Proposed Action can object to it by delivering or mailing a written objection to the personal representative at the address in the notice (Cal. Prob. Code Section 10587(b)).
Alternatively, the objecting party may request from the probate court an order restraining the personal representative from taking the proposed action without court supervision. Here the court has broad powers in response to the objection of an interested party. The court must grant such a request even without the obligation of giving notice to the personal representative and without cause being shown for the order. Once a restraining order has been issued or the personal representative has received notice of written objections to the Notice of Proposed Action, court supervision is required in order to take any action pertaining to that property (Cal. Prob. Code Section 10589).
Must the personal representative administer the estate under the IAEA if the representative has been granted the authority to do so by the court?
No. Even though the court has granted the personal representative the authority to administer the estate under the IAEA, the representative is not required to sell the property in this manner. The determining factor of whether a representative exercises the authority to sell the property under the IAEA is what is best for the estate, taking into consideration many factors including:
· The process of sale under the IAEA is usually quicker than a court supervised sale;
· There is no requirement of overbidding or court confirmation of the sale under IAEA;
· The personal representative can agree to any terms and contingencies deemed necessary to close the sale;
· The general economic and market forces; and that
· Overbidding in court often times increases the purchase price of the property and the proceeds to the estate;
· Which manner of sale likely produces maximum estate assets
How does a sale conducted under the IAEA affect a licensee’s right and duties?
The personal representative has the power to grant an exclusive right to sell property for an original period not to exceed 90 days. Any extensions are also limited to a 90 day time period (Cal. Prob. Code Section 10538(a)).
However, when the combination of the original listing and all extensions exceed 270 days, the personal representative shall provide a Notice of Proposed Action to all interested parties to the will. Further, a licensee is still required to comply with the agency disclosure laws and conduct a visual inspection of all accessible areas of the property and disclose what the inspection reveals. Additionally, under the IAEA, a broker and a personal representative can contract as to the amount due the broker as a commission without court approval (Cal. Prob. Code Section 10538(C)).