Inheriting a House

By Admin

December 30, 2022

Inheriting a house can significantly improve your long-term financial picture, whether you sell it for a windfall or keep it as a residence or rental property.

There are substantial considerations to make first, however, including whether to keep the house and why, how you’ll manage any outstanding debt on the property and how to work with any fellow heirs.

1. The legal process of inheriting a house
   • First a disclaimer: Laws vary by state and your case may be different. Below, we go over the most common legal process of inheriting a house.
   • In most states, when you inherit a house, your name doesn’t go on the title immediately. The first step of settling an inheritance involves a probate court judge. The judge reviews the deceased person’s will and approves an executor who carries out the will’s terms to its legal extent.
   • Look into insurance. The homeowners insurance shouldn’t lapse. Make sure to bring or keep the premiums current.
   • Identify any liens and maintain payments. Contact any lienholders to keep up with the payments on any outstanding debt. Liens could include a mortgage, second mortgage (home equity loan or line of credit), unpaid property taxes, etc.
   • Address utilities. Cancel and/or reestablish utilities and services at least temporarily, until the new owners take possession. These may include: electricity, sewer, internet, cable, phone, lawn care and homeowners association (HOA) dues.
   • A home appraisal will determine what the home is worth, which can influence the taxes inheritors face.
   • Research property taxes. Property taxes may or may not be included in the mortgage. Annual property taxes may be due or the house may have unpaid property taxes.
   • Find and allocate belongings. If the deceased person willed that certain people inherit specific items in the house, the executor will find and ensure the correct people receive them.
   • At this point, the house is still considered an asset of the person who passed away. If that person had any outstanding debts, their assets could be used to repay those bills. As an inheritor, you have a “right to ownership” but you don’t own the house until the title is in your name.
   • A home appraisal will determine what the home is worth, which can influence the taxes inheritors face.
   • Research property taxes. Property taxes may or may not be included in the mortgage. Annual property taxes may be due or the house may have unpaid property taxes.
   • Find and allocate belongings. If the deceased person willed that certain people inherit specific items in the house, the executor will find and ensure the correct people receive them.
   • At this point, the house is still considered an asset of the person who passed away. If that person had any outstanding debts, their assets could be used to repay those bills. As an inheritor, you have a “right to ownership” but you don’t own the house until the title is in your name.
   • At this point, the house is still considered an asset of the person who passed away. If that person had any outstanding debts, their assets could be used to repay those bills. As an inheritor, you have a “right to ownership” but you don’t own the house until the title is in your name
2. Step to take when inheriting a hous
   • 1. Talk to the executor
     • The executor is a key figure for the process. Ask them for information and coordinate with them to get what you need. Discover who your co-inheritors are. Perhaps you’re one of several children or grandchildren inheriting the house
   • 2. Talk with any co-inheritors
     • If you aren’t the sole heir for the house, talk with your co-inheritors. See what their dispositions are toward selling or keeping the property. The situation can be complicated if several of you want to keep or live in the house, and others want to sell and split the proceeds. In extreme cases, you may want to look into inheritance dispute resolution. You won’t be able to sell the property unless the other heirs agree, and someone will need to maintain the house until a decision is made. But maintenance is costly, and even if you take on the caretaking role, you won’t have a stronger legal claim to the house. The best thing to do is find out who has a stake in the house and communicate early and often about everyone’s intentions and expectations.
   • 3. Get an appraisal
     • If the executor didn’t order one, consider getting an appraisal. Knowing the cash value of the property can strongly influence your decision to keep or sell the home. You may decide a low value property in need of serious maintenance isn’t worth the investment. On the other hand, a house that’s in good shape might serve as a nice vacation or rental property. The home’s value will also determine how much you owe in taxes. Inheritance tax laws vary throughout the U.S., but you could be subject to estate, capital gains, property and other taxes.
   • 4. Evaluate any debts owe
     • Ensure that a thorough search is done on any liens that claim the property as collateral. If the house still has debts against it or a tax lien, find out how much is owed and what the payments are. Evaluate the property’s total debts compared to its financial value and any emotional value it may have for you and your family.
   • 5. Consider getting professional advice
     • Professionals can help clear complications and confirm any debt associated with the house, the taxes you’ll owe as the heir, and how buying or selling the home will impact your finances. You can consider lawyers (preferably with estate planning and real estate expertise), estate planners, accountants, financial advisors, trust officers and/or philanthropic consultants. You may need to rely more heavily on an accountant to evaluate the tax situation; an attorney to explain your legal options with regard to ownership and buying out other heirs; or a financial advisor to discuss how best to maximize your new asset. If you elect to hire more than one professional, make sure they are in contact with each other. This can make your life easier.
3. What to do with an inherited house
   • 1. Move in
     • Your inherited house could be a great primary residence or vacation home. The caveat: This is typically the most expensive option. Potential costs include the mortgage, taxes, maintenance, repairs and insurance, plus buying out any co-inheritors, if applicable.
   • 2. Rent
     • Renting out the inherited property could provide some nice passive income, allow you to retain and grow an investment as the home value appreciates, and keep the house in the family. You could rent it to long-term tenants or to vacationers á la Airbnb style. If you have co-inheritors, you could buy them out and rent the property as the sole owner, or rent it with your co-owners, splitting the costs and the income. Either way, consider buying landlord insurance and hiring a professional property manager to do the work for you.
   • 3. Sell
     • You could sell your stake in the house to a co-inheritor or you could sell the entire house. Selling the inherited property can be the easiest way to split its value, get some cash and/or take care of any remaining debt that was held by the deceased person. Here are tips for selling your home.
   • Whether moving in, renting or selling, you may want to do repairs and renovations to bring the house up to date. Home improvement loans are available.