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Inheriting a house is a bittersweet experience. While you’ve gained new property that can drastically improve your standard of living, you’ve also lost a loved one. Making rational and financially sound decisions while you’re grieving can seem impossible, especially if you’re inheriting a house from a parent.
Yet, with knowledge, guidance, and a little planning, you can make positive life changes in the wake of a heartbreaking loss.
When you inherit a home you’re suddenly faced with a multitude of questions you may not be prepared to answer. How do I claim my inheritance? What do I do with the property if it’s in poor shape? Should I move into my loved one’s home, or should I sell it?
Be prepared to commit to many financial and emotional decisions you make when inheriting a house.
Obtaining your inherited property is a straightforward process but can seem overwhelming to those not familiar with it. Before deciding what to do with your inherited house, the estate must go through probate.
Probate is the legal process for settling an estate, usually involving lawyers and other seasoned professionals to help transfer assets and pay off debts. Most states allow a summary probate to occur; this is an expedited process that avoids litigation.
However, that option is for smaller estates – those not exceeding more than the state laws allow. Many estates with property exceed the proposed maximum and must suffer through the regular probate process.
After your inherited property passes probate, it’s yours to do with as you will. But what should you do when inheriting a house? Most heirs have three options: move into the property, transform it into an investment property, or put it on the market. Although all options can be beneficial to a benefactor, evaluating your inherited property will allow you to choose the best one for your financial future.
Moving into an inherited home appeals to many heirs. The property can hold sentimental attachment if you’re inheriting a house from a parent. You also might want to hold onto the property if you’re already a renter and the inherited home is an upgrade to your current residence. However, moving into your loved one’s home isn’t a realistic option to those already paying a home loan, or happy with their current house.
Inheriting a house that is paid off might lead some heirs to travel the rental route. This happens a lot when it comes to houses inherited in [target_city].
Renting out property can often generate income. But the expenses of maintaining a rental can be overwhelming to new landlords.
Not only do landlords pay for the upkeep of the property, they often need to update an inherited home before renting it out. Old homes can seem outdated to potential renters, so placing a tenant in your inherited home might isn’t guaranteed. Unless you’re willing to take a major risk, the reward for converting your inherited home into a rental property isn’t worth the headache.
Inheriting a house and selling it may be your best option after the initial home evaluation.
Just be careful of the unknowns.
Selling the property not only allows an heir to pay off any debts accrued by the decedent, it also gives the heir freedom from making major repairs that can be costly. If the property needs too much work, selling as-is to an real estate investment firm offers a speedy resolution to a money hemorrhaging home. Getting an inherited home into selling condition might take time, but it offers the smallest amount of risk with the biggest reward.
Inheritance comes in all shapes and sizes. Along with a home, your loved one can leave almost anything behind in a last will and testament: family heirlooms and collectibles, vehicles and motorboats, and sums of money. But did you know the decedent can leave behind unexpected expenses too?
Most heirs don’t realize that inheriting a house and taxes go hand in hand. Although state tax rules and exemptions fluctuate, expect to pay a little something to Uncle Sam once you claim an inherited property. Heirs benefit from a stepped-up basis; they inherit the home at fair market value at the time of the decedent’s passing. This means you’re only taxed on the home’s appreciation after inheriting it. If you make minimal improvements to the property and sell it quickly – with a home buyer for instance – you may avoid a capital gains tax altogether.
What about inheriting a house with a mortgage? Does an heir assume those expenses when claiming the property? The short answer: you only assume a mortgage on an inherited home if you decide to move in or rent it out. If you decide to sell the property during the probate period or soon thereafter, the mortgage can be paid off with the profit of the sale.
On the other hand, if you’ve decided to keep the house, you must transfer the mortgage over to your name and continue payments within the lender’s specified time frame or risk foreclosure. Sometimes an added home loan payment helps heirs choose to sell their inherited house.
Even if an heir decides to sell an inherited home, the property still requires paying for even more expenses. Until the house is sold, expect to pay property taxes, liability insurance, utilities, and general upkeep for maintenance monthly. Unless you have money saved to keep your loved one’s home, these financial burdens can be devastating. Inheriting a house and selling it might be the best option for a property that costs too much to manage.
Managing an estate can be complicated when doing it alone. Inheriting a house with a sibling can be much more difficult. If all heirs agree on what to do with the property, the process can be smooth. But what do you do when you and your siblings cannot compromise?
All assets must be divided evenly when inherited to multiple people. This includes property. If the decedent leaves a home to more than one heir, each heir has equal rights to the property. These joint-heirs are considered tenants in common. While each sibling owns a percentage of the property, they’re all entitled to use the entirety of the home. This can be an ideal situation for amenable heirs, but what about siblings that aren’t willing to share?
“Get all the options out on the table with family members,” offers Richard Koreto, contributor to realtor.com’s blog, House Logic. “There may be a creative solution” to an heir disagreement. If a compromise cannot be made, judicial action can be taken but is not recommended. It’s divisive, expensive, and time-consuming.
Losing a family member is emotionally draining. Processing your loved one’s will and sifting through legal documents can add stress to an already anxiety-inducing ordeal. But understanding the litigation and knowing your options might alleviate some of this stress. Inheriting a house in [target_city], [target_state_abbreviation] doesn’t have to be another financial burden. With the right guide and careful planning, you will know how to handle your loved one’s property with ease.
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