Receiving a house as an inheritance can be overwhelming. It may bring back painful memories, or you could love the property but lack funds to cover the mortgage debt. If multiple people, such as siblings, inherit it, then selling and dividing up the proceeds is necessary.
No matter what situation has arisen from your newfound real estate asset, some steps must be taken to ensure you make decisions with confidence and financial stability.
Navigating the intricacies of selling an inherited home can be daunting, considering it involves legalities, financials, and market strategies. Here are some critical steps to follow when putting your inherited house on the market, determining the sale price, and assisting you through this tricky process.
Your Guide to Selling an Inherited Property
After the passing of a loved one, their property is often inherited. Knowing that this can come with new and sometimes tricky tax obligations is essential in these circumstances.
It might be beneficial to take some time before deciding what you’d like to do with the inheritance – waiting until after your initial grieving period has passed will help make those decisions more manageable in the long run.
You’ll need to confront the following realities when selling an inherited property:
- Inheritance rights
- Tax implications with the IRS
- Capital gains tax (home sale tax exclusion may apply)
- Federal estate tax
- Income tax
- Inheritance tax
- Property tax
- When to sell
What Is An Inherited Property
Legal proceedings are usually required after inheriting property from an estate. If the deceased has left behind a valid will that outlines their wishes, much of this process may be circumvented. On the other hand, if there is no existing will, typically, the next of kin would become the estate’s rightful owner(s).
Probate is a legal process that oversees the administration of assets left behind upon someone’s death, regardless if there was a will. It helps to ensure that the wishes and legacy of those who have passed away are respected and carried out by their desires.
Each state has varying regulations and practices when it comes to probate. In general, however, a court-appointed executor is charged with ensuring the instructions in the will are followed – including providing estate assets are conveyed properly and not squandered.
Sometimes, the property is held in a trust which comes with its own rules and regulations.
How Probate Works
The probate process is a court-supervised means of confirming the will of someone who has passed away. It entails recognizing the decedent’s last assets, settling their remaining debts, and disbursing their estate to the relevant heirs.
Specific probate laws are divergent across states, yet the core process is virtually identical countrywide. Lawyers are predominantly responsible for most of the effort required to accomplish this task.
What is probate?
In straightforward terms, probate is a method by which an estate of the deceased person is distributed. This usually involves legal professionals and a court proceeding whereby the provisions stipulated in the will are read and bequests presented to beneficiaries. Depending on the size of the estate, this process might take some time before it’s completed.
Only some assets need to go through probate for them to be transferred. Some states have laws that enable smaller estates with a specific value or below to be passed on without any form of probate—or at least the process is simplified. But when an estate exceeds that amount, full-fledged probate must occur before assets can legally change hands.
Naming an executor
When constructing a will as part of estate planning, one typically names an executor to take charge of the probate process. This guardian has only 30 days from their testator’s demise to file with their local court system for formal approval.
What if there is no will?
When someone passes away without leaving a valid will, they are considered “intestate.” To deal with such situations, every state has established laws of intestate succession that dictate where financial bequests should go based on family ties. Generally speaking, these rules include spouses, parents, siblings, grandparents, and cousins.
File and validate a will
An executor is typically legally obligated to promptly record the deceased individual’s testament with their local probate court. Additionally, this person may need to submit the death certificate and petition for opening probate in tandem.
Subsequently, a probate court judge assesses whether the will is legitimate. This typically necessitates an appearance in which all beneficiaries defined in the will have the authorization to review and acknowledge or object to their role within it. The court ascertains how best to proceed with wills that are disputed.
As soon as the executor signs and receives the Letters of Authority or Administration, they officially enter into a legal agreement to proceed with probate proceedings. This responsibility includes overseeing aspects related to estate management.
Once the probate process begins, the executor must recognize all valid and existent assets owned by the decedent and their worth. This typically requires pouring through past banking statements, tax reports, and other related documents.
Paying the estate’s debts and taxes
As the executor, you must also hunt for any of the decedent’s lingering creditors. State regulations dictate different timeframes in which these creditors can make claims against the deceased individual’s estate. Thus, it is critical to remain aware and up-to-date on your state laws regarding such matters.
When a person passes away, their estate must settle any outstanding debts they left behind. This includes medical bills, tax bills, and other expenses that could not be paid before death. Since these are charged against the decedent’s estate, substantial debt can drastically lessen the assets available for transferral to heirs upon passing.
Distributing property to heirs
After the court has verified that all taxes and debts have been settled, the executor can start distributing what’s left of the estate by the will.
Can You Sell a Property as the Executor of the Estate
When carrying out the estate settlement process, converting any illiquid assets, such as property, into cash is necessary. Typically an executor will begin by liquidating stocks and bonds, mutual funds, and bank accounts. Moreover, if applicable, they must sell valuable items that belonged to the deceased, including real estate holdings.
All proceeds from the asset sales will be placed into a designated estate account. Any valid creditor claims, legal expenses, and other approved costs are to be paid out of that same bank account, with the rest being dispersed amongst the rightful heirs.
In some cases, it is acceptable for the executor of the will to sell the property to themself.
Do You Need All Beneficiaries Consent to Sell an Inherited Property
You, the executor, hold the power to sell any properties without needing the beneficiaries’ consent. Nonetheless, a notification will be dispatched informing them about this transaction, so they can stay updated on what is happening – although their approval will be optional for it to occur.
After an executor is named, the probate referee will assess all of the estate’s belongings- including real estate. If you can sell it for 90% of the appraised value of the home or higher, then authorization from both the court and beneficiaries is optional. Therefore, this process allows for an expedited sale of inherited property.
Laws and Rights for Beneficiaries of An Inherited Property
Though a person may lawfully choose to whom assets are dispersed, specific restrictions exist regarding surviving partners. Innately, inheritance rights can overshadow the provisions made in a Will or testamentary document.
Beneficiary inheritance rights
Beneficiaries of an estate have a few fundamental rights that should be protected, such as the right to timely receive assets left for them, access information related to estate administration, and ask for suspension or removal of executors.
Children and Grandchildren Inheritance Rights
Generally, neither children nor grandchildren have any official entitlement to a deceased relative’s estate. This implies that if they were not specified as beneficiaries in the Will, they are unlikely to dispute the document through legal action legally.
However, if a Will accidentally fails to include children as heirs, most states grant minors the right to contest it. In such cases, the state presumes that the parent has not deliberately disinherited their child yet instead did so unintentionally.
The following states have “community property” laws:
- New Mexico
In those states categorized as “community property,” spouses are entitled to the equitable division of all earnings gained during marriage and any assets bought using such gains regarding death or divorce.
In these ten states, a spouse can legally challenge the Will and petition for their rightful 50%. As expected, such requests are usually fulfilled by state courts.
Ex-spouse inheritance rights
To ensure that property is not left to your ex-spouse upon death, drafting a new Will as soon as possible after divorce and revoking the previous one is imperative. Doing this guarantees that any of your assets won’t be distributed to them in case of death. Additionally, an ex-spouse has no legal right to inherit from their former partner’s estate.
How to Sell an Inherited Property
When you decide to sell an inherited property, it is essential to understand the distinct duties of this type of sale and all the typical activities tied up in selling any home.
These responsibilities include:
- Wading through the probate court’s lengthy process of settling an estate can be a daunting task.
- Distributing property among heirs and, if applicable, hosting an estate sale are excellent ways to distribute personal belongings.
- Pay mortgage payments, homeowner’s insurance premiums, property taxes, and utilities while you possess the home.
- When filing taxes, it is essential to understand how to report your sales profits accurately and pay the correct tax rate.
If your most significant concern is an immediate sale, you should consider selling the inherited house to a cash buyer. You won’t always get fair market value.
Yet, this route can prove more convenient and less anxiety-inducing for those overwhelmed by the home sale process – an invaluable benefit. Another benefit is that you can skip the expense of a real estate agent’s commissions.
It can be an exceptionally overwhelming experience if you have inherited a house. Memories may resurface, and the weight of covering mortgage debt could create financial hardship. If multiple family members are involved in this inheritance, your best option is to sell the home and divide any proceeds among yourselves.
Regardless of what circumstances have come with your newly acquired real estate asset, you must take the necessary steps to make sound decisions with financial security and trust. Selling an inherited home can be complex, requiring financial and legal considerations and market strategies.
You can skip the hassle of dealing with a Realtor, lenders, and determining the value of the property by selling your home to a cash buyer. They will typically offer you a fast and fair buy out.
No matter what decision you make, consulting with a financial advisor is usually a good idea. They can help you determine how to pay capital gains tax and file an accurate tax return when Uncle Sam demands their pound of flesh.