What To Do When You Inherit a House

How Does Inheriting a House Work?

Inheriting a house comes with many decisions. However, before you take possession of a home, you'll have to follow a few steps.

1. Check the Status of the Estate

While many people know whether or not they'll inherit a house, not everyone knows what it entails. 

Most inherited properties are passed down through probate, death deeds, or living trusts. 

Probate

There's more to inheriting a house than signing documents. Probate is required for most inherited real estate, especially if the deceased didn't have a will. 

Probate is the court-supervised process of validating a person's testament once they've died. It's supervised by a probate court, which rules on will and estate-related matters. The court will also oversee the potential sale of any inherited property. 

In short, probate carries out the deceased's wishes, though it can also be necessary if expenses need to be paid from the estate.

The probate process typically includes the following

• • Confirming the will is valid 

 

• • Assessing the person's possessions

 

• • Having the property appraised 

 

• • Paying off debts and property taxes

 

• • Distributing the remaining property to loved ones

 

Probate can take anywhere from six months to two years, depending on how state and local laws affect your situation. Certain assets and whether or not people challenge the probate petition may also affect this timeframe. 

Death Deed 

A transfer on death deed, also known as a beneficiary deed, is much simpler. With this deed, you can acquire the house immediately and avoid probate. You can also sell the house as soon as you want. 

However, transfer on death deeds are only available in certain states, and each has its own laws concerning them. For instance, Tennessee does not allow transfer on death deeds. 

Living Trust

Another way to inherit property is through a living trust, which names the deceased as the trustee of their home and assets and you the beneficiary. It also specifies who will make the decisions regarding the house sale. 

A living trust is one of the best options if multiple heirs are involved. Plus, you'll skip probate, avoid estate taxes, and have the option to sell whenever you choose.

2. Identify the Executor

If the deceased had a will, they should have named an executor. This is the person legally responsible for making decisions about the estate. However, if no one was named, the house has to go through probate, and the court will appoint an administrator.  

If you're the executor, what you do with your inherited house is entirely up to you! Nevertheless, consider the house's condition as well as your financial status before you make your choice. Here are a few factors that may affect your decision.

Taxes 

All inherited properties are subject to taxes, but the amount and type of taxes you'll owe depend on your situation. For example, if you move in or rent out the house, you'll be required to pay property taxes as the new owner. You're also accountable for the maintenance and HOA fees. 

Other relevant taxes may include. 

• • Estate Taxes - If you inherit a house, you're responsible for paying taxes on its fair market value, though this typically comes out of the estate's funds and assets. 

 

 

• • Capital Gains Taxes - You'll have to pay capital gains tax if you sell the property for more than its fair market value when you inherited it. For example, if the house was worth $300,000 when you inherited it and you later sold it for $350,000, you would pay capital gains on $50,000. 

 

Additionally, if you inherit a house with a mortgage and choose to keep or rent out the property, you're responsible for paying it off. However, sometimes the mortgage is already paid off by the estate. 

Repairs 

For many, inherited house repairs range from small, decorative touches to larger projects. Depending on what you decide to do with the home, the amount of work you'll need to put into it may influence your final decision. 

Keep in mind, if you list, you need to pay for a real estate agent as well as any staging or closing costs. 

Co-inheritance

In some cases, there may not be a single executor or administrator. When this happens, you have the same decision-making power as the other heirs. This can result in long legal battles and expensive lawyer fees if no one agrees on what to do. 

3. Decide What to Do with the House

 

Move In 

You can move into your inherited home if you can afford it. However, consider mortgage costs. If you inherited the house with other heirs, you might have to buy them out of their shares, which could mean a larger mortgage. You'll also want to factor in property taxes, repairs, etc. 

Additionally, if the home has a reverse mortgage, you may need to pay it off or refinance it. Reverse mortgages allow borrowers to withdraw cash for their home's equity as regular payments or all at once. When the property is sold or transferred, the lender is paid. 

So, If you plan on making your inherited home your primary residence, you'll also have to pay off the lender. 

Rent It Out

If moving in isn't in the cards, consider renting out your inherited property. Turning the house into a vacation rental is one option, as is finding long-term tenants. While turning it into a marketable rental might take some money, it may give you a passive income. 

That said, being a landlord can be a lot of work - and it could complicate things if you co-own the property with other heirs. Renting the home may also change your tax implications. 

Sell the House

Like any other real estate, you have a few options for selling. The traditional route would be to hire a real estate agent, though you could also try selling the house yourself or quickly to a cash buyer. 

Use a Real Estate Agent

If you aren't the only heir, it may help to hire an agent who specializes in inherited real estate. They can help navigate the sale process, though you'll need to create a plan to cover expenses while the house is on the market. You'll also have to budget to fix the property if it needs repairs. 

Sell it Yourself

Listing the house as For Sale By Owner (FSBO) is another option that may yield a higher profit in the long run, though it comes with more responsibilities like marketing and negotiating with potential buyers. 

Sell to a Cash Buyer

Your final option is to sell your inherited house to a cash buyer. This is one of the quickest ways to sell, and you won't have to worry about closing costs or realtor commissions. 

Reliant Home Buyers of TN specializes in buying homes as-is so you can finalize the sale in days instead of months. 

While the final sale price will depend on the circumstances, cash home sales are ideal if you live out of state or can't afford to care for another house.