What to do when you inherit a house: A step-by-step guide
There’s so much to think about in the wake of a loved one’s death: funeral expenses, wills and trusts, contacting creditors, the probate process, and what to do with any estate inheritance. It can be overwhelming, to say the least—and at a time when you just want to grieve at your own pace. Sometimes you wish someone would just give you a step-by-step guide of what to do at every juncture.
At Wren Realty, we like to think of ourselves as hope when you need it most. We try to be more than just house flippers or wholesale buyers. We will go above and beyond to make sure selling your inherited property is as easy, painless and straightforward as possible.
Whether you want to liquidate the estate or keep it, here’s what you need to know about what to do once you’ve inherited a home:
What to expect during the probate process
Probate is a confusing process that greatly affects the process of selling inherited property, and one that is unique to every person’s situation. The probate process will be affected by what documents your loved one has left—wills, trusts, beneficiary deeds, or nothing.
- What is probate?
On a basic level, when a house is in probate, it means that the court is negotiating the existing documents—if there are any—and then distributing the assets first to creditors, then to inheritors. For example, if your loved one had an outstanding credit card balance, unpaid taxes or other debts, their assets would first be used to pay off the debts, then given as prescribed in the relevant documents to the inheritors.
- Can you sell a house that is in probate?
Yes. The money from the sale, however, will be held by the title company for a period of time, which gives creditors time to claim the assets before being distributed to the inheritors.A probate property sale will be handled exactly the same as any other, except the title company may have some special requirements which vary depending on the specific situation. Wren Realty uses a local, reputable title company that is well-versed in handling probate property sales. Their attorneys know the steps to be taken in order to successfully sell a house in probate.If you are looking to sell a house in probate, we can work with you. Once we have a contract in place, the title company can take it from there. Probate property sales are unique, though, because it might be several months before you receive the cash from the sale. We have to wait for the assets to be handed over to the inheritors—you—before you can receive the value of the sale.
If you decide to sell, you should first determine how outdated the house is. Outdated houses often take significant repairs and renovations to get “retail-ready.” If your home looks like it hasn’t been touched since 1975 you should consider selling as is to a trustworthy cash buyer unless you have the time, energy and funds to fix it up yourself.
- What if I don’t want to sell the house?
Of course, you don’t have to sell your inherited property. Perhaps the home has sentimental value, and you or your co-inheritors would like to keep it.You can wait for the house to come out of probate, and then rent it out or live in it yourself. When you inherit a home, however, you inherit its property tax, insurance, mortgage balance, utility expenses and, in the case of duplexes, multi family homes and apartment buildings, the tenants. This is why some inheritors choose to sell property in probate—they get to cash in on the property without the responsibility, upkeep and expense of keeping it.
How to navigate family disputes about what to do with the inheritance
Sometimes people choose to leave property to multiple inheritors, usually their children. Of course, this can create conflict, especially when co-inheritors can’t agree on what to do with the property. Just because you’d like to sell your estate inheritance doesn’t mean your co-inheritors will agree. You’ll need to navigate how to best handle these family disputes in a positive manner, and know the process of selling inherited property owned by multiple beneficiaries.
- Coming to a handshake agreement
If you and your co-inheritors get along relatively well, then perhaps you can come to an unofficial agreement about what to do with the property. If you and all your siblings would like to keep the property, you’ll just need to agree on whether you’d like to rent the home out, or live in it.Even if you want to sell the house—and none of your co-inheritors do—then there’s the option of having your siblings “buy you out.” Basically, they’d give you your share of the home’s estimated value, and they’d then be able to keep the home to live in or rent out.
For siblings that are on good terms, private agreements are faster, easier and cheaper than involving lawyers. Still, you should probably put whatever you agree to in writing, just in case future disagreements should arise.
- Sue for partition of the property
Let’s say you and your family don’t exactly get along. Then involving the law through a suit for partition might be your best option, especially if you and your co-inheritors absolutely cannot agree on what to do with the property.Essentially, a suit for partition is a plea to the court for separation of a land asset. This is relatively simple if your inheritance is land—the court will split it into two or more comparable pieces that the co-inheritors will individually own. Once ownership is separated, each co-inheritor can do whatever they please with their share.
For houses, it’s not quite as simple. In this case, a suit for partition often forces the liquidation of the asset so the value can be split among the beneficiaries. Each beneficiary can then decide for themselves what to do with their share of the asset.
What to know about transfer taxes, capital gains taxes, property taxes and debt
When you receive an estate inheritance, you also inherit the property taxes, mortgage, utility bills and debt of your loved one. First, you’ll need to dole out money to the tax man, credit card company and other debts your loved one might have. Then you can cash in on your estate inheritance.
- Inherited debt
It’s possible that your loved one passed away with a great deal of debt. All of that should be taken care of in probate. Their assets will first be offered up to creditors to pay back any outstanding debt. Then whatever value remains in the home is yours, the inheritor’s.
Perhaps they had paid off their mortgage, but had credit card debt. Some of the value of the home would be given to the credit card company. To fully own the home, you might then have to take out a loan for the difference. Alternatively, you could sell the home for the remaining value.
- Property taxes
The good news is that you’re inheriting a home. The bad news is you are inheriting its property taxes. This means that if you choose to keep the home, you will have to pay the property taxes. Depending on the value of the home and its location, the property taxes might be more than you can afford. In this case, selling the home might be your best option, or at least something worth considering.
- Capital gains taxes
Capital gains taxes are another thing to consider, especially if you choose to keep the home. Capital gain tax is a complex subject, but basically, you will be taxed—and steeply—for profit made from selling a property because it’s considered a “capital asset.” The profit is defined as the difference between the value at purchase and the value at sale.
And, your inherited home is oftentimes more valuable than it was when your loved one purchased it years ago. Fortunately, profit for capital gains taxes on inherited property are measured only from the date it was inherited. So, if you were to sell it the day you inherited it, you stand to pay no capital gains taxes.
If, however, you choose to keep it, you might have to pay capital gains taxes on whatever value the home gains over the years at a rate of 0 to 20 percent depending on your tax bracket.
This is another reason many choose to liquidate inherited property quickly—to avoid the steep rates of capital gains taxes.
At Wren Realty, we’ve been buying inherited homes as is for 30 years. We make a fair cash offer—higher than our non-local competitors offer—and we always close quickly. More importantly, though, we take each of our client’s needs seriously and treat their situations delicately.
We’re not your average fast-and-quick wholesale home buyer. We’re people first, house flippers second—one of our guiding principles is that we always speak the truth. We’ll guide you through this stressful time, offer you a fair price and let you get on with your life.
The loss of a loved one is difficult. You’ve got enough on your plate—let us help you through this. Give us a call and we’ll talk through your options.