When someone passes away owning a house, the family has a hard job. When they pass away owning a strip center, a small apartment building, a warehouse, or a portfolio of rentals, the job is harder, because the property doesn't stop running just because the owner is gone. Rent still has to be collected. Tenants still call about leaks. The mortgage, taxes, and insurance are still due.

Here's how commercial property in an estate usually gets handled and sold in Kentucky. This is general information, not legal advice. A probate attorney, and often a CPA (Certified Public Accountant), should be part of this from the start.

First: how was the property owned?

This is the question that decides almost everything else.

• In the person's own name: it usually goes through probate, the court process that settles an estate. In Kentucky, that's the District Court in the county where the person lived. The court appoints a personal representative (an executor if there's a will, an administrator if there isn't) to handle the estate.
• In an LLC (limited liability company) or corporation: the company owns the property, and the company keeps existing. What passes through the estate is the ownership of the company. The operating agreement usually says who's in charge and how a sale gets approved. This can be much simpler, or much more complicated, depending on how that agreement was written.
• In a trust: the trustee usually has authority to manage and sell without probate.
• With a partner or co-owner: the deed and any partnership agreement control what happens next.

Your attorney will confirm which applies. Until you know, don't sign anything with a buyer.

Keep the property running while you sort it out

A vacant or poorly managed building loses value fast. In the first few weeks:

• Tell the insurance company the owner has passed, and confirm the coverage stays in force. Ask about vacancy clauses if any space is empty.
• Find the leases, the rent roll (the list of tenants, rents, and lease dates), and the bank account rents go into.
• Make sure someone is collecting rent and paying the bills: mortgage, property taxes, utilities, and insurance.
• Let tenants know who to contact for rent and repairs. Keep it calm and simple. Tenants who think the building is in chaos start looking elsewhere.
• If there's a property manager, keep them in place for now. If there isn't, consider hiring one until the sale.

Who can sign a contract to sell?

Only the person or people with legal authority: a court-appointed personal representative, the LLC's manager or members as the operating agreement allows, or a trustee. A buyer's title company will want proof of that authority before closing.

In probate, Kentucky generally gives creditors six months from the personal representative's appointment to file claims. Many estates sell sooner but hold back some of the money until that window closes.

Taxes that come into play

The step-up in basis

When someone inherits property, its tax value generally "steps up" to what it was worth on the date of death. For a commercial building bought decades ago and depreciated for years, this can wipe out a huge amount of taxable gain. If the estate sells soon after the death for close to that value, there may be little capital gains tax at all. Have your CPA confirm, and get a formal appraisal as of the date of death. It's worth every penny later.

Kentucky inheritance tax

Kentucky still has an inheritance tax, but close family is exempt. Spouses, children, grandchildren, parents, and brothers and sisters fall in the exempt group (Class A). Nieces, nephews, sons- and daughters-in-law, aunts, and uncles (Class B), and friends and others (Class C), may owe tax.

Selling vs. exchanging

If an heir wants to keep investing rather than cash out, they may be able to inherit, then later sell and do a 1031 exchange into a different property. Timing and how the property is titled matter a lot. Read our 1031 exchange guide for Kentucky commercial real estate and talk to your CPA first.

Your options

• Sell on the open market: usually the highest price, especially for stabilized, well-leased property
• Sell quietly to investors: faster and more private, good when tenants are nervous or the property needs work
• One heir buys out the others: we can provide a neutral market value so everyone works from the same number
• Keep it and hire management: makes sense when the heirs want the income and agree on how to run it

When heirs don't agree

It happens a lot with income property, because one heir wants the monthly checks and another wants the cash now. What helps most is everyone seeing the same numbers: what it would sell for, what it earns after expenses, and what each person's share looks like either way. If the family truly can't agree, Kentucky law has a court process for that, called a partition action, and your probate attorney can walk you through it.

How we help

• A broker's opinion of value for the estate, for both today's sale and planning conversations with your CPA
• A clean package for buyers: rent roll, leases, expenses, and tax history
• Marketing to the right buyers, from 1031 investors to owner-users
• Coordination with the personal representative, attorney, CPA, and property manager

If the estate also includes a house, see our inherited house and probate guide.

If anyone connected to Winner Commercial ever wanted to buy estate property directly, we'd tell you in writing up front that they hold a real estate license, as Kentucky requires.

Frequently asked questions

Can an executor sell commercial property in Kentucky?

Usually, once appointed by the court and if the will gives that power. If it doesn't, the heirs may all need to sign, or the estate may need court approval. Your probate attorney will confirm.

What happens to tenants when a commercial property owner dies?

Their leases stay in effect. The estate, or the new owner after a sale, steps into the landlord's shoes and has to honor the leases.

Do heirs pay capital gains on inherited commercial property?

Often very little if it's sold soon, because the tax value generally steps up to its value at the date of death. Depreciation taken by the original owner generally doesn't carry over to the heirs. Confirm with a CPA.

What if the property is owned by an LLC?

The LLC still owns the building. What passes through the estate is the ownership of the LLC, and the operating agreement controls who can approve a sale.

Talk to us

Call or text Winner Commercial at (502) 305-8915, or send the details through our commercial inquiry form. We'll start with what needs to happen now, and what can wait.