Wade Law Blog

When a beneficiary inherits toxic property

Jun 23, 2016| BY: Wade Law Offices

There are several problems that can arise when you discover that your property is contaminated. It may be contaminated because at one time it was the site of an auto repair shop, and was polluted with petroleum products. As the owner of the property, you may have difficulty selling it, or your heirs may be faced with the challenge of selling the property, or contending with neighbors who threaten to sue them for the expense incurred in cleaning up the pollution, health issues, reduced property values, the costs of medical monitoring or other damages.

Consider the case of an elderly couple who wished to bequeath to their three sons three pieces of land, all of which had low cost bases, and were believed to be equal in value. When their financial advisor noticed that the operators of an auto repair shop had once conducted business on the property, they discovered that the land was contaminated with petroleum products, and there was much uncertainty as to whether the heirs would be able to sell the land, and how much below the initial estimate the property was worth.

The couple made the decision to sell the property in spite of the taxes they would have to pay on the profits, so that they could leave a specific amount to their sons. Fortunately, in this scenario, there was minimal cleanup required, and they sold the property for a favorable price. This is a prime example of the problem that is referred to as toxic succession.

Although there are laws and regulations that are intended to offer protection to those who purchase and sell property that could be contaminated, there are no such laws in place to protect heirs. Consequently, financial and legal advisors frequently don’t speak to clients about the perils associated with leaving contaminated property to their beneficiaries. The source of the problem lies with the federal Superfund law, which imposes joint and individual liability for contamination on current and past owners and operators. Although you may have been unaware of the contamination on the property at the time of purchase, and you did not cause the contamination, or rent to someone who did, you are still responsible for the cleanup.

In order to prevent leaving a bequest of contaminated property to your heirs, you can ask your estate planning attorney about the possibility that your property is contaminated, and if so, what steps you should take prior to including it in your will or your revocable living trust. Your attorney will be able to advise you as to what precautions to take, including making an inquiry into the property’s history in order to discover whether it was previously the site of an auto shop, dry cleaner, gas station, railroad or industrial facility. It is also advisable to tour the property and check for the presence of chemical odors, old machinery and oil drums, and if you suspect that such contaminants exist on the property, you should employ the services of an environmental investigator to analyze samples of soil, water and air.

If the property is believed to be contaminated, another solution is for the owner to place the property into a separate trust to be administered by a corporate trustee. This would serve to distance the beneficiary from the litigant, and restrict a litigant’s ability to access other assets. If the property is known to be contaminated, a simpler solution is for the heir to disclaim the property, and if all subsequent heirs did the same, the property would go to the state.

Asset Protection, Estate Planning, Succession Planning, Trusts

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