Inheriting a house can be fraught with emotional and financial decisions. Many people are aware that they will inherit a home long before the time arises. Still many others are caught off guard when they’re informed they are the beneficiary of a piece of real estate. Regardless of which group you fall into, we have some information to help you navigate the arena of real estate inheritance.
Are You In This Alone?
The first thing you need to know is if you inherited this house solely or if there are other devisees, or recipients of the real estate inheritance. If you’re the sole the devisee of the property, you have sole authority to do as you wish with the property. Many times, though, a home will be bequeathed to several people and each person will have an equal say in the property unless otherwise noted in the will. If your relative did not leave a will, you may still have an interest in the house but you will need a Probate Court to determine the lawful heirs before any disposition or title transfers take place.
Free and Clear?
If the decedent owned the home for many years, it’s likely the property is owned free and clear of a mortgage; however, you shouldn’t assume that the property is free and clear of any liens. Unpaid taxes and municipal bills could have become liens on the property. Your best course of action is to order a report on the current title of the home. For a nominal fee, a title report will provide you with information for the most current deed and mortgages, if any, and any unpaid taxes or liens against the property.
Sell, Move-in, or Rent?
Deciding what to do with the house is often a decision of personal choice. If you’re the sole inheritor of the property, you may wish to move into the home. If you inherited the property with several others, an agreement will need to be reached as to what to do with the house. If one person wants to move into the property, the easiest course of action would be for that person to buy out the interests of the others, usually through securing a mortgage.
If the property is still mortgaged, you’ll want to continue making timely payments. Renting out the home would be an option to generate an income to cover the cost of the mortgage and other monthly expenses but will obviously come with obligations. (Read our post about becoming a landlord.) Selling the property is another option to dispose of the property, pay off any liens, and liquidate any remaining equity. You will need to make the necessary repairs, if any, to bring the house up to code and make it marketable to either a renter or buyer. An experienced Realtor will be able to assist you in the listing and sale or lease of an inherited property.
The Tax Man Cometh
As with most transaction, taxes will apply. An estate may be levied an estate tax (federal) and an inheritance tax (state) in addition to any transfer taxes should the property be sold. The estate and inheritance taxes levied are based on the value of the estate and how the inheritances are bequeathed. You may be able to pay the necessary taxes at the time you sell or transfer title. You should consult a licensed accountant or attorney to determine the taxes the estate is obligated to pay and when they are due.
Inheriting a property doesn’t need to be a financial burden or create conflict between family members. Informing yourself and being realistic about the value and debts of the property will help you determine the best course of action.
Disclaimer: Seek the advice of a licensed attorney in the appropriate jurisdiction should you have questions regarding your rights as an estate beneficiary.
Editor’s note: This post was originally published October 2014. It has since been updated and edited for clarity and cohesiveness.