Inheritors Be aware of future assets....

VICKI TEMKIN, a lawyer in suburban Los Angeles, inherited a few pieces of property when her mother died in 1999. But she was also left with the responsibility to clean up several acres of land that had been polluted by tenants over the decades.

She spent the better part of the last decade and about $1 million in cleanup fees, and that does not count the additional $1 million or more in lost rent.

"No one was happy about having to clean it up," said Ms. Temkin, who, with her sister, inherited half of the property. (The other half went to the children of her father's business partner.)

Inheriting any property is more complicated than receiving securities or cash. If it is a family home, sibling rivalry can wreak havoc. If it is an income-producing apartment or commercial space, someone has to manage it. Or some heirs might want to cash out their share.

But inheriting contaminated properties, even if the deceased owner had nothing to do with polluting the land, is in a category all its own. Known as "toxic succession," a property passed on with environmental liabilities could end up costing the inheritor more than it is worth.

Kevin Daehnke, a senior partner at the Daehnke Cruz Law Group and an expert in toxic succession, said the best remedies needed to be taken before the property is left to an heir, but most of the time no one knows the liabilities are there.

In Ms. Temkin's case, the contaminated land had originally housed a gas station but had also been leased to a chemical manufacturer and a storage facility. She said it had been a major source of income for her family until about 2003, when a buyer approached her. As part of the deal, she had to get an environmental report, which turned up serious pollution.

The buyer walked away, but she and the other owners were put on notice to clean up the property if they ever wanted to sell it. (She declined to specify the city other than to say it was outside of Los Angeles.)

"We decided we'd just rent it and take the loss and not sell it," she said.

But the amount she could charge in rent was half what it had been, since the tenant could not use the contaminated part of the property.

When another chance to sell came their way in 2006, Ms. Temkin and the other owners decided to take it and clean up the property. That took until 2013. In addition to the cleanup costs and lost rent revenue, she said, they had to accept 25 percent less for the two-acre parcel.

And even though they received a certificate from the city saying the case was closed, Ms. Temkin said she and her partners could still have to do more.

"If pollution should be discovered in that area, we're on the hook to clean it up," she said. "I don't think any of us realized we'd be on the hook for life, no matter what. I don't know if we'd have agreed to sell it if that had been known to us."

In this instance, at least, Ms. Temkin's parents and then she and her sister — not to mention the other half of the partnership — benefited from the property for three decades.

That is not always the case. Sarah, who agreed to talk on condition that her last name be withheld because she fears future litigation, inherited a piece of property in Southern California when her father died in 1986. She was 18, and the property and other assets were held in trust for her benefit. The next year, the trust cleaned up the property, which had a dry cleaner on it, and sold it.

But then, 25 years later in 2012, Sarah was named in a lawsuit claiming that residual contamination in the soil had sickened dozens of people who worked in a building constructed on the land. Her mother was named in a separate suit.

"They said the toxic waste had percolated through the ground water and caused all kinds of diseases," said Marshal Oldman, a trust and estates lawyer who had worked on behalf of the family. "It was a fishing expedition."

It may have been. But Sarah said responding to the suit cost her more than $500,000 in legal fees and two and half years of worrying about the suit's validity before a court dismissed the case. She estimated that her mother's legal fees were double what she paid.

"I felt bad for these people, but I didn't do it," she said. "I was being punished for the sins of my dad. It's frustrating. There was nothing I could do."

And in this case, Mr. Oldman said, it was the tenant, not Sarah's father, who had polluted the land.

Mr. Daehnke, who also worked on the case, said such lawsuits were more common than it might seem, particularly when plaintiffs identify what they think is a deep-pocketed former owner — in this case Sarah's trust.

In instances of environmental contamination, any one in the chain of title can be held liable. But those without any money essentially are skipped. The people who have the means can then be sued and will ultimately pay for the cleanup.

"Even if someone only owned 5 percent of the property, they're still liable," said Canaan Crouch, an environmental engineer and a partner at Landmark E&S Insurance Brokers. "You could be responsible for 100 percent of the cleanup if you're the only viable economic entity."

Still, these properties were contaminated, and someone needs to pay to clean them up. While that cost varies from tens of thousands of dollars to millions, the issue for many inheritors is how long someone can be held responsible for the damages.

If the property is thought to be contaminated, there are several solutions, Mr. Daehnke said. It could be sold in the owner's lifetime, since any future liability would end with that person's death. Or it could be put into a separate trust with a corporate trustee to administer it. That puts distance between the beneficiary and the person suing and limits a litigant's access to other assets.

If the severity of the contamination is known, Marty Babitz, senior resident of the Hawthorn Institute, which is part of PNC Family Wealth, said the easiest solution might be for the inheritor to disclaim the property. Everyone else in line to inherit could do the same and the property would end up going to the state.

"I'd have nine months to ascertain if the property might be more trouble than it's worth," Mr. Babitz said.

Yet most of the time, contamination issues do not become known until someone tries to sell the property and an environmental test is ordered.

Once the contamination is found, there is insurance to cover future liability, even in cases that might seem uninsurable. Mr. Crouch pointed to a plant nursery in the San Francisco Bay Area where heavy metals were found in the soil and a nearby stream. The owners paid seven figures to clean it up before selling the land to someone who wanted to put a preschool on it.

"The location was important, so the buyers stuck in there," Mr. Crouch said.

Given what is on the land now, it is not hard to see how some parent might sue the preschool or the land's previous owner. So the previous owners bought an insurance policy to cover such possibilities as the environmental regulator reopening the case or someone suing the previous owners for missing a spot in the cleanup or saying there was pollution on an adjacent property that harmed a child.

"It all comes down to money," Mr. Crouch said. "Unless there is some sort of money at risk, 9.9 times out of 10, people have no concept of environmental issues."

And not paying attention to those could turn a windfall inheritance into a money pit.

Source:http://www.nytimes.com/2016/02/20/your-money/contaminated-property-makes-for-costly-inheritance.html?ref=topics