Inheritance is a delicate thing. The process can be frustrating at times, emotionally draining at others, and the government gets involved far too often than most people like to admit. Unfortunately, it’s just a part of life and the only way out is to press on and push through.
Whether you’re inheriting a project house, a pretty penny or just a lot of paperwork, you have some major questions to answer and some big decisions to make.
We’re here to help.
Here are some straight-forward answers to 4 pressing questions regarding the inherited property.
Who’s in the will?
If there’s no will, this process gets complicated fast and there are many state-specific laws you must abide by. Your best bet is to get an attorney involved from the beginning.
If there is a will, the deceased person probably indicated to whom they wanted their home to go. It might be just one person called the principal beneficiary — or it could be multiple people, like a parent who leaves their home to their three children called tenants in common.
If you’re the principal beneficiary, you get to make the decisions. If you’re not the only one, you’ll have to agree with your younger brother for once in your life.
What are my options?
It might seem crazy, but sometimes inheriting property comes with too much-unwanted responsibility — an underwater mortgage, tax liens, maintenance, repairs or worse.
If you’re going to end up paying out more than you’d make from selling, it may be worth refusing the inheritance altogether, especially if it doesn’t hold sentimental value.
Live in it.
If you had your first kiss on that front porch swing, your brother learned to ride his bike in that cracked driveway, or you have distinct memories of your father reading in his leather armchair with his glasses teetering on the end of his nose in that living room, it can be pretty hard to stick a price tag on a signpost on the lawn and walk away.
Whether you lived in the home yourself at one point, have good memories of holiday events at your parents’ or just can’t shake the smell of your dad’s cologne in every room, being sentimental about a house is normal.
You have the option to live in the house. If you decide to sell it later after living in it for at least two years, you may be able to take the home sale tax exclusion.
Rent it out.
If you can’t quite stomach the mental picture of sleeping in the master bedroom your parents used to sleep in, but aren’t ready to put the house on the market, renting it is a good alternative.
So long as the property is in good repair, you can make additional income and offset some of the property taxes and mortgage costs. To rent it out, you will need to refinance the property in your name and keep the house in good condition.
Probate is the legal process that validates the will. Probate laws differ in every state but the process must happen pre-sale. In California, for example, as well as in some other states, the executor of the will is responsible for keeping the property safe and maintained during the legal process.
Putting the house up for sale entails a whole new line of questioning about legal ramifications and readying it for market.
What are all these taxes?
It’s no surprise Uncle Sam gets his take when you sell an inherited property. There are rules and loopholes. No matter which tax laws apply to you, selling an inherited home counts as a reportable event.
The federal estate tax only applies to estates valued over $5.49 million (or $10.98 million if married, filing jointly) as of 2017. A 40% tax is slapped on the excess value. Mind you, this applies to the entire estate, not just the house. Some states also have their own estate taxes.
If you, like most of us, aren’t dealing with quite that many zeros, forget about the estate tax and focus on the stepped-up tax basis.
Stepped-up tax basis
The stepped-up tax basis is the current (at time of death) appraised value. Say your grandmother bought the house in 1906 for $20,000 and at the time of her death, it’s worth $720,000. If you sell it for more than its appraised value — say $750,000, you’ll only pay capital tax on the $30,000 gain.
Only six states currently collect the inheritance tax, colloquially referred to as the “death tax”:
- New Jersey
It doesn’t apply to spouses and often exempts sons, daughters and parents.
Example: Your bitter Aunt Mildred lived in the middle of Kentucky and didn’t like any of her family, so she decided to give her estate to her cat upon her death. Her cat, who is not her immediate blood relative, would need to pay the inheritance tax.
How do I sell inherited property?
Go through stuff.
Sorting through your family’s heirlooms can be an emotional toil — sentimental objects, pieces of furniture that have been in the family for generations, hanger after hanger of clothing that smells like Mom’s laundry detergent. You could be grieving or in the middle of a stress-induced spat with your siblings, but the mortgage is due on the first regardless.
Unfortunately, the obligation to sift through the deceased’s belongings doesn’t ever come at an opportune time.
If you’re DIYing this process, be kind to yourself. Save a few items that represent the person best. Donate or hold a yard sale for the rest. Invite family over to help. Uncork a bottle of wine (or two) and make the experience a flood of happy memories and funny stories.
If going through your loved one’s belongings sounds like something out of your recurring adult nightmare, or it’s simply too emotionally draining to handle, hire out the task.
Estate sale and auction companies offer all the bells and whistles for a small cut of the profits, and for many families, this is well worth it. An estate sale means they’ll open up the home — every drawer and closet — and put everything up for sale. An auction is slower but more items will sell. The company you hire will do all the advertising and take care of all the logistics.
Repair, clean and stage your inherited property.
If Grandma hasn’t remodeled her bathroom since 1962, or the heating isn’t in working order, you’ll have to make some repairs and updates before you put the house on the market. Chat with a Realtor before you venture into any big projects. They’ll help you determine what’s worth it and what’s not.
After you’re finished with any big construction projects, whip out the 409 (or hire a professional cleaning company to take the reins.) Finally, staging the home doesn’t necessarily require a decorator but be objective as you declutter and depersonalize the space.
Find to a good real estate agent.
You can’t sell the house until a judge decides the will is legit and it clears probate. While you’re waiting for this process, find a good real estate agent. A top agent can sell your house more quickly and for more money. It helps if the real estate agent specializes in probate properties.
It’s easy to find an agent but it’s hard to find a good one. HomeLight matches top selling real estate agents with sellers who need them.
Inheriting a property is a mixed bag. On one hand, you just received an inheritance and potentially a financial windfall. On the other hand, you have big responsibilities and you’re maybe midway through the loop on an emotional rollercoaster.
Arm yourself with family. Hire a tax attorney or an accountant if numbers are hard. Find an estate sale company if piles of stuff give you panic attacks. Solicit the help of a real estate agent (no matter what) and stock up on tissues and wine (just in case).
Article Image Source: (David Jakab/ Pexels)