Suppose you have the good fortune to inherit a sizable estate from a deceased relative. The inheritance includes a $250,000 cash gift plus an old gas station.
Maybe you're not so lucky. If the gas station has a gas or oil leak on the property, the "distressed" real estate could end up costing thousands of dollars in environmental clean-up.
Can you accept the cash and take a pass on the gas station? The short answer is "no". When an heir accepts an inheritance, he or she accepts the assets and assumes full responsibility for any environmental clean-up required under current state and federal laws.
The scope of an environmental liability for decedents' estates and trusts is growing. Unfortunately, such liability is not limited to businesses like a gas station or paint company -- a residence or farm also may be contaminated. For example, if you inherit a house heated by fuel oil and the tank has a leak, or your family farm shows signs of pesticide spillage, you could be culpable.
More bad news. Even if you try to sell the distressed real estate immediately, you might not be "off the hook." Sophisticated buyers are demanding a due diligence period during which they will conduct their own environmental testing. Any signs of trouble and the sale falls through.
Even if you sell to an unsophisticated buyer, you still can't eliminate liability. With your name in the chain of title, you'll be considered a "potentially responsible party" and can be held accountable for any future discovery of contamination.
What should you do if you inherit real estate that may pose environmental concerns? The first step is to retain a professional engineering firm to evaluate the real estate before accepting the inheritance. A typical environmental protection phase one report costs approximately $1,000-$2,000 and consists of an assessment of your property that includes a complete history tracing the chain of title, aerial photographs and on-site investigation.
If the property shows signs of distress, additional tests called a phase two report will be conducted. Typically, a sample core boring will be sent to a lab for further investigation.
If a beneficiary does not engage in an environmentally sound course of action, the estate distribution process may be delayed or postponed. Many professional trustees will decline to assume responsibility for contaminated property in a trust or estate.
How can you avoid these problems? The old adage sums it up: "an ounce of prevention is worth a pound of cure." If you know a relative or potential testator has contaminated property, address the issue now, and begin clean-up efforts.
Often the costs of delaying environmental clean-up grow exponentially over time. Discuss specifics with a reputable environmental engineering firm or visit your bank's trust department or trust attorney for guidance.
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