The Sundae Guide to Inheriting a House
What happens when a parent or someone close to you dies, and you inherit their house?
Before anything else, the title to the home goes into a county court called a probate court. The probate court is responsible for distributing the remaining assets in accordance with the last will and testament of the person who passed or, if none exists, state law. The probate process begins when a representative of the person who died files a petition with the court. The will usually names that representative, also called the executor, who then serves as the party responsible for carrying out the terms of the will.
Note: To get a complete overview of the probate process, read Sundae’s in-depth guide on how probate works.
The probate process can take anywhere from six months to two years to evaluate the deceased person’s home and estate. Taxes and debts, such as mortgages, are paid from whatever wealth the person had at the time of their death. In some cases, the home itself may be sold to pay off the debts, in which case no one receives the inherited house.
Once all debts are paid, the home’s title will move from the probate court to you, with the new deed in your name. Then you have a free house, right?
When you accept the deed, you are also accepting new responsibilities. These include paying the property taxes, insurance, cleaning and repair costs, and utility bills for the property. But accepting the deed does not mean you must keep the house.
Instead, you have a few basic options for dealing with an inherited house. You can sell it, move in, or keep it and use for another purpose, such as renting it out to another resident. Of course, you can also decline the house altogether. Here’s what to consider for each option.
Option 1: Sell the House
This is a good option for: Siblings or multiple parties who have inherited a house together, and anyone in need of a financial boost or an easy resolution.
What to consider: Taxes and the house selling process.
How to proceed: If you decide selling is the way to go, you’ll want to start by deciding whether to sell the house with an agent or sell the house to a cash buyer. Use the time during the probate process to speak with someone who knows the house’s location. If possible, talk to an agent with experience selling inherited houses. Try to determine what your net proceeds would be from each type of sales approach. Sundae has a comprehensive guide to help with this decision.
Don’t forget about: The contents of the property and the condition of the house.
Take time to sort your loved one’s personal effects and distribute them among members of your family in accordance with instructions in the will. Be sure to research the tax implications of selling the house, as laws around this frequently change.
Remember, when you inherit a house you also get everything inside it. Consider hiring an estate sale company to help you deal with the house’s contents. For a small commission, these companies set up, promote, and oversee a sale of all remaining items to the public.
Finally, depending on which way you’ve decided to sell the house, you’ll need to prepare the property for sale. You have the choice of making repairs, or selling the home as-is.
Option 2: Move In
This is a good option for: Renters, younger people who don’t own property, and anyone who wants to own their own house.
What to consider: Taxes (again), location, and moving costs.
How to proceed: First you’ll need to decide if moving into the inherited property is an upgrade of your current living situation. Remember, homeownership is not for everyone. There are pros and cons to both renting and buying, which you can learn more about in this article.
You also need to know if the home is in a livable state. Have a professional home inspection service come into the home and tell you what needs to be fixed and replaced. Get rough quotes for these fixes.
Call the county clerk and find out what the property taxes will be. If the house came from one of your parents, the home might be eligible for exemption from a tax hike, which will make living in the house more affordable. If the house is in Iowa, Kentucky, Nebraska, Maryland, New Jersey, or Pennsylvania, you may owe inheritance tax, but may also qualify for exemptions. Be sure to enlist the help of a CPA.
Don’t forget about: Moving costs. Even if you decide not to hire a moving company, you’ll still need to account for the costs of a moving truck, boxes, packing supplies, and probably some additional manual labor. Then there are the hidden costs of moving that include replacing lost and broken items, setting up or transferring utilities, and furnishing the new space.
Option 3: Rent the House
This is a good option for: Anyone who could use a passive income stream, especially as one nears retirement.
What to consider: The time and energy you can commit to managing a rental property.
How to proceed: First, ask yourself how much work needs to be done on the house to ready it for a rental tenant. Address the items on this basic checklist:
- Schedule a home inspection.
- Resolve all safety and compliance issues and make necessary repairs.
- Ask an insurance agent for a quote on a rental property insurance policy to protect you against any legal disputes.
- Research neighborhood and city rules, including zoning rules, that could affect your ability to rent.
- Put money aside to cover maintenance and repairs. Estimate about 1% of the total home value per year.
- Make a realistic calculation of the time and care you can commit. Troublesome renters and managing the wear and tear on rented buildings can cut into a landlord’s monthly income.
Don’t forget about: The rules, regulations, and legal side of being a landlord. You’ll need to familiarize yourself with federal and state fair housing regulations, and be ready to create and enter into contractual agreements with your tenants. You might want to consider using a property management company, which will handle everything for a monthly fee. Select a professional manager with a solid local reputation.
Option 4: Decline the House
This is a good option for: Anyone who simply doesn’t have the time or interest to deal with the decision.
What to consider: The cost-to-benefit analysis of taking control of the property and deciding from all the options discussed above.
How to proceed: If you prefer not to inherit the home, you may refuse your inheritance with a disclaimer of interest, signed and notarized by a notary public.
The probate court can tell you how to get, complete, and submit this form. You might need to deliver it to the executor or to the probate court. Ask them how to make sure the county records a copy of your completed form, so there is no confusion in the records in the county where the house is.
In most states, you will need to complete a state disclaimer form that allows you to forfeit an interest in any asset in whole or in part. You’ll need to work with the executor of the estate to ensure you file all the needed paperwork.
File the disclaimer as soon as possible after the death (in California it must be within nine months). Whether you file it with the personal representative of the deceased, the probate court, or another proper recipient, you have now said “no, thanks” to your inheritance. Here are a few important dos and don’t to keep in mind:
- Make decisions promptly. Remember that an executor is paying fees and taxes out of the estate until the house is transferred to a new owner.
- Talk with a local wills and estates lawyer on how the disclaimer of interest impacts you and the estate.
- Don’t live in the home. Not even for a night. If you want to legally lose it, you’re not allowed to use it.
- Don’t submit the form unless you’re sure. Once the disclaimer is filed, there’s no turning back.
Don’t forget about: The other people in the will. Whatever you decide, remember to inform other people who are inheriting from the estate. When you refuse a home, you effectively pass it like a hot potato to the person next in line. Until someone accepts the title, it remains in the estate.