Inheriting a House? Navigate Your Options and Responsibilities

Inheriting a house can be a life-changing event with emotional and financial implications. Understanding your options and obligations is critical, whether you sell it, keep it, or rent it out. LendingTree insights show you how to make the most of your inheritance.

What’s the Legal Process of Inheriting a House?

When inheriting a house, you don’t immediately receive the title in your name. The inheritance process may involve probate where a judge reviews the will and appoints an executor to carry out the Testator’s wishes, a trust administration where a trustee controls the property or a non-probate option such as a Lady Bird Deed or transfer on death deed conveying the property to a person like a beneficiary designation.

These processes may involve responsibilities like insurance, identifying debts or liens and paying utilities. They also distribute belongings and manage property taxes.  In some cases, the property needs to be sold to settle the decedent’s debts and may not be inherited at all!!!

What Should You Do when Inheriting a House?

When you’re in line to inherit a house, there are steps to consider and take.

  1. Communicate with the Fiduciary: Establish a clear line of communication with the executor, trustee or other person who is handling the estate. This will help you learn the necessary information and simplify the transfer process.  This will especially help with transfers of utilities, insurance and keys.  You’ll also want to make sure the property is secure so that nothing happens to it while the estate proceeds.
  2. Insurance.  Speaking of insurance, property insurance usually has a clause in which the home won’t be insured if it’s unoccupied, such as during an estate administration.  The fiduciary may pay for insurance during an administration to protect the house, but the beneficiary should coordinate the transfer at the end of the administration to ensure the property is insured.  
  3. Coordinate with Co-Heirs: Work with the others if you are one of several heirs. Avoid costly disputes by deciding whether to sell, keep, or rent the property.
  4. Determine Property Value: An important step in estate administration is valuing the property as of the date of death which may be done by an appraisal or other means.  The new owner needs this information to determine whether to keep, sell, or rent the home while informing you of tax liabilities should you sell the property in the future.
  5. Evaluate Debts: Identify any liens or debts tied to the property and compare them against the house’s value. Understand the financial implications and incorporate that into your decision.  With mortgages, you may be able to continue paying the existing mortgage, and if not, can consider refinancing.
  6. Seek Professional Advice: Consult estate planning attorneys, accountants and financial advisors. These professionals can clarify ownership-related problems, such as debt obligations and inheritance taxes and how to rent the property.
  7. Update your Estate Plan.  Receiving real estate is often a reason to review and maybe update your own estate plan.  Going through the estate process to receive the house is invaluable experience in determining how you want to leave the property to others.

What Should You Do with the House?

Moving Into an Inherited House

Moving into the inherited house can provide a new residence or vacation home. However, this option can be costly due to mortgages, taxes, repairs and insurance.

Renting Out an Inherited Home

Renting out the property can provide passive income, while keeping it in the family. Buy out other heirs or work with them to share costs and rental income.  This is certainly more work, but might help reduce costs while figuring out a long term plan.

Selling Your Newly Inherited Home

Selling the house is a straightforward way to obtain immediate cash. The proceeds can help pay off debts tied to the house, and the remaining proceeds will go to the heirs.  I often encourage people to consider this first because keeping the house is an obligation and ongoing expense that sometimes get’s out of hand.

For more information, see this article on inheriting property.  https://galligan-law.com/inherited-property-what-you-need-to-know/

In all cases, talk to an estate planning attorney if you have questions on inheriting a property and how this impacts you, your loved ones and your estate plan.

Reference: LendingTree (Nov. 16, 2021) “Inheriting a House? Here’s What to Expect”

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Estate Planning Avoids Problems With Selling the Family Home

Estate planning can help avoid problems when selling the family home.
Estate planning can help avoid problems when selling the family home.

Family members who are overtaken with grief are often unable to move forward with selling the family home after a parent has passed away. If the family home was not being well maintained while the parent was ill or aging, it might fall into further disrepair. When siblings have emotional attachments to the family home, things can get even more complicated. The difficulty of selling a parent’s home after their passing, depends to a large degree on what kind of estate planning the parent has done.

Much also depends on the family’s ability to ask for help and work with the right professionals in handling the sale of the home and managing the estate. The earlier the process begins, the better.

Parents can take steps while they are still living to ward off unnecessary complications. It may be a difficult conversation but having it will make the process easier and allow the family time to focus on their emotions, rather than the sale of property. This is why is is important to address what happens to the family home in an estate plan.

Here are a few pointers:

Make sure your parents have a will or a living trust. Many Americans do not. A survey from Caring.com found that only 42% of American adults had a will or a trust, and other estate planning documents.

After a parent passes away, there may be costs associated with maintaining the property and fixing any overdue repairs. Make sure to save all receipts and estimates.

Also, the Executor or successor Trustee under the parent’s estate planning documents should secure the property immediately. That may mean having the locks changed as soon as possible. Once an heir (or someone who believes they are or should be an heir) moves in, getting them out adds another layer of complication.

Be realistic about the value of the property. Have a real estate agent run a competitive market analysis on the property and consider an appraisal from a licensed appraisal. Avoid any accusations of impropriety—don’t hire a friend or family member. This needs to be all business.

To keep disagreements to a minimum, the Executor or successor Trustee should frequently update the heirs on how the sale of the house is progressing.

The biggest roadblock to selling the family house is often the emotional attachment of the children. It’s hard to clean out a family home, with all of the mementos, large and small. The longer the process takes, the harder it is.

This is not the time for any major renovations. There may be some cosmetic repairs that will make the house more marketable, but substantial improvements won’t impact the sale price. Remove all family belongings and show the house either empty or with professional staging to show its possibilities. Clean carpets, paint, if needed and have the landscaping cleaned up.

Keep tax consequences in mind. Depending on where the property is, where the heirs live and how much money is being inherited, there can be estate, inheritance and income taxes.  It is usually better to sell an inherited property as quickly as possible. When a property is inherited at death, the property value is “stepped up” to fair market value at the time of the owner’s death. That means that you can sell a property that was purchased many years ago, but not pay taxes on the value gained over those years.

Talk with an experienced estate planning attorney about what will happen when the home needs to be sold. It may be better for parents to create a revocable trust in advance, which will direct the sale, allow a child to continue living in the home for a certain period of time, or instruct the one child who loves the home so much to buy it from the trust. Trusts are typically easier to administer after parents pass away and can be very helpful in preventing family fights.

Dealing with issues in advance through estate planning will help minimize conflicts after a parent passes away. Learn more avoiding estate planning mistakes.

Reference: The Washington Post (May 16, 2019) “With proper planning, selling a parent’s house can be a relatively painless process”

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