Caveat: This article is not about the legal process for finalizing an inheritance. The details to cover that topic are extensive and readily available online. As a convenience, we have outlined some of the basic steps and guidelines at the end of this article. Rest assured, at some point in the inheritance process, you will need to work with an attorney who should cover all the details of what needs to take place to finalize the inheritance.
In this article, we focus on you and the inherited home. That alone is a big topic and can be problematic for most. What can and should we do with it? And how and where do we get the help we need?
Only a quick mention of the legal process, there are three ways you may inherit a home: by deed, by will or by trust. The way you inherit the property will dictate the next steps you take, and yes, probate could be one of those steps in the process.
Whether your inheritance is finalized or still in process (maybe through probate), it’s not too soon to start thinking about what comes next, the implications for you and your family, and how to get the help you need to get the most from your new inherited home.
There are a few options for what you can do with your newly inherited home:
- move in and occupy the home,
- sell the home,
- rent the home for an ongoing income stream,
- donate it for the tax write-off, and/or
- if the home is older, demolish it and sell the land or rebuild new.
Making that decision can be challenging enough, but it’s even more complex if there are siblings or other beneficiaries who will share the inherited asset.
If multiple heirs were each bequeathed part ownership of the home, everyone may not agree about how to share the asset. Especially if the home has been in the family for a long time and has fond sentiments for the parties involved.
The best bet is to reach out to all the co-inheritors and see what they want to do with the property. If the sentiments do not align, it might require some relational troubleshooting along the way. In extreme cases, you may want to look into inheritance dispute resolution or other mediation strategies.
You might be able to come to an agreement about how to share the home, especially if it’s a vacation property on one of our beautiful Florida beaches. Another option is to buy out the others or sell them your portion.
If you and the other co-owners cannot agree on what to do with the home, it’s time to involve attorneys and potentially let the court decide through a “partition lawsuit” regarding how to divide the property.
Options for an Inherited Home
Let’s say all co-owner disputes are settled, and you are ready to take ownership. Below are a few outcomes you could anticipate.
Occupy the Home
There are a myriad of reasons why you may or may not want to move into the home: physical liking, location/convenience for family or work, fond memories, cash savings if the home has no mortgage, etc.
If it is a good option for you, there could be one long-term benefit: avoiding or significantly reducing capital gains tax down the road. By making the home your permanent residence and if you live in the home for 2 or more years, when you sell the home, it will be treated as a permanent residence, which will allow you to exclude a good portion of the profit that otherwise would be taxable ($250,000 for single people; $500,000 for married couples).
Sell the Home
You may not wish to relive old memories in your mother’s pink kitchen or your dad’s wood-paneled office, so selling might be an easy choice. With co-inheritors, this also could be an easier option to deal with.
When you sell a home after an inheritance, the IRS applies a step-up process that revalues the home to today’s standards. Thus, if you sell the home right away, there would be no capital gains (because there would be no profit from the time you inherited the stepped-up home to when you sold it). Capital gains taxes will apply if you hold onto the home and it appreciates before you sell it.
Investment/Rent the Home
This can provide a nice ongoing income stream, and it might be something you’ve always thought about doing. As long as you are aware of the challenge of being a landlord and maintaining investment properties, this could be a great option.
Remember to think long-term about when you might sell the home. It will be valued as an investment property and taxed accordingly. Talk with your CPA about financial implications that may apply.
Donate the Home to Charity
Donating the home absolutely is an option worth considering, especially if you don’t need the income that could be generated from a sale of the home or renting the home. Tax implications can vary greatly depending on your specific situation, so you should consult a CPA for the best advice on how to handle this.
Demolish and Sell or Rebuild
If the inherited home is older or hasn’t been taken care of, one can be disheartened by the inheritance and simply want to sell it as is. Think beyond the walls of the home and explore the value of the land. It might be worth the cost to demolish and rebuild a home that best suits your needs. If not, a vacant lot can be more attractive to a buyer or builder than a fixer-upper.
Inheritance Real Estate Logistics
Before you can free and easily know that the home now belongs to you, you will need to go through some logistical steps. Your first step should be to talk with the person overseeing the affairs of the decedent (the person who died), usually an executor (also called a personal representative), or a trustee, if your home is being received through a trust.
This designated controller will be your best source of information and updates. Ask him/her for information and coordinate with him/her to get what you need. Ask about co-inheritors. Also, ask about the financial obligations related to the home: mortgage, insurance, liens, maintenance, etc.
Likely, your loved one’s estate (including the home you stand to inherit) must go through probate unless he/she had the home in a trust to avoid this. In many cases, the house cannot be taken over or sold for several months until it is determined that creditors have been satisfied with other assets and the home’s title is clear.
The executor or trustee likely will work with you to manage the financial aspects of the home, especially if the home has a mortgage that must continue to be paid or closed out (with full payment). Formalizing these plans helps probate move along more smoothly.
If your loved one had a mortgage on the home, most likely it can be taken over by the heirs. Called a mortgage assumption, you would take over the existing mortgage, including the loan term, interest rate, and monthly payment. This is a good option if the mortgage has great terms that you cannot get today. Note that not all mortgages can be assumed – another logistic you’ll need to check on.
If you have the means, you could choose to buy out the mortgage / pay it off. Another option is to refinance the mortgage, which would be advantageous if today’s interest rates are lower.
If the home has a reverse mortgage (or a Home Equity Conversion Mortgage), the options are slightly different. Many people think that the bank takes the property when the owner dies with all reverse mortgages, but that’s not the case. The home likely still has equity that can pass to the heirs.
However, the bank has been holding the mortgage on the home, and the bank needs to get paid back when the owner dies. The options to settle a reverse mortgage are:
- You could pay off the bank and own the home outright.
- You could take a new mortgage to pay the bank what it’s owed.
- You can sell the home, pay the bank, and the remainder of the proceeds would belong to you and other heirs.
Selling the home is a likely option, especially if there are co-heirs or if you don’t have the extra money available to fund the estate, mortgage, insurance, homeowner’s taxes, maintenance, etc.
If the home is being sold as part of probate (being sold to help pay creditors), the process can be a little different from a regular sale. The process all depends on whether the executor is granted rights of independent administration versus dependent administration. In summary, independent administration works more like a regular home sale, where the executor (likely working with you) can set the list price, list the property, and accept an offer on your timeframe, all without interference from the probate court.
In comparison, dependent administration will feel like a more highly structured closeout, and it has more court hearings, rules, and paperwork involved. The sale is rigorously laid out to a plan.
With all of these options, you also need to consider how buying, mortgaging or selling the home will impact your finances.
Get Help from a Real Estate Professional
By now, you might be thinking it’s time to get some help, and you are exactly right. This is when a Certified Probate Real Estate Specialist (CPRES) can be tremendously helpful to alleviate some of the difficulties of this unpleasant time. A CPRES is a real estate professional trained by the U.S. Probate Services and is Certified based on their ability to handle complex probate property sales procedures.
Robert Coscia, Broker and Owner of Personal Realty Advisers, has been a CPRES for many years, and he has helped home sellers through this type of difficult time. Rob will help you with some of the tasks outlined below, but remember, as a Broker, he brings even more strengths to the table to manage the most complex situations. Rob can assist you with the following:
- help manage the property during probate or another transition process;
- help you explore options for the property, including sale, rental and other choices;
- secure the property; change all locks; continue to work with all vendors to maintain the property, pool, lawn, etc.
- manage communication with and between co-heirs, personal representative or trustee, and attorney, as needed;
- prepare the home for sale (overseeing maintenance/repairs, clearing out, cleaning, strengthening curb appeal and more);
- work with the executor and attorney to adhere to all probate sale requirements;
- prepare for listing and market the property, including determining the home’s value, preparing the listing and all required forms, and managing all promotions for the sale (home photography, aerial photography, 360-degree virtual tour, website, promotional mailings, open houses, and more);
- facilitate the sales process through offer, negotiation and closing; and
- manage all logistics with the probate court, as needed.
Rob will serve as an expert adviser during the home selling process, helping to manage probate requirements and facilitate their communication to help prevent disputes and minimize stress.
Whether it’s a tidy inheritance or probate, selling a loved one’s property can be very difficult emotionally and logistically. Having a certified probate real estate specialist to help navigate through it all can make a major difference.
If you know family or friends going through such a loss, let them know about Personal Realty Advisers and Rob’s ability to help them through the process. We can be reached at 727-317-7653 or by email at info@PRAFlorida.com. We look forward to being of assistance.
TERMINOLOGY – INHERITANCE METHODS
Inheriting a Home by Deed
If you inherit a property by deed when someone dies, it is through a deed instrument called a life estate deed. In that deed, the “fee simple” owner first conveys the property to him or herself to own for the rest of his or her life, thereby becoming a “life-estate tenant.” The owner also identifies in the deed who will get the home/property after the life-estate tenant passes away (called the “remainder” or “remainderman”).
If you inherit a home in this manner, the follow-up does not involve Florida probate proceedings. Still, it may require the recording of an affidavit or death certificate in the public records.
Inherit a House by Will (with Probate)
If you inherit a home by Will in Florida, the property must go through the Florida probate court to finalize the title change, especially if the home has a mortgage. The house is considered an asset of the estate and must be treated like other assets until probate is completed and creditors are paid.
Inherit a Home Through Probate / Intestate (No Will)
Probate is a court-supervised process for identifying and gathering the assets of a deceased person, paying the decedent’s debts, and distributing the decedent’s assets to his or her beneficiaries.
If there is no will, it is the court’s duty (with the help of the decedent’s personal representative and estate attorney) to determine who the beneficiaries are. Potential beneficiaries can petition the court to determine their share of the assets.
Inherit a House by Trust (Revocable Trust)
If you inherit a home through a trust, it was stated in the trust document that you, or you and others, are entitled to the property. In some cases, homes are passed on to another trustee, which allows the trust to continue after the decedent/trustor dies.
The administration of a revocable trust after death is similar to a probate administration. The trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate or continue its existence.