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.
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.
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.
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.
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.
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.
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.
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.
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.
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”