Inheriting real estate can be one of the most painful ways to acquire property. You've lost a loved one and now you have your loved one's primary residence to handle. If you plan to sell the property make sure you read on to get a general idea about what to do next.
"A lot of people have enough to do just to maintain their own property and now all of a sudden they have another piece of property they have to deal with -- that's a little difficult, says Carl Izzo, Managing Director at Fiduciary Real Estate Advisors in Boston.
Transferring the property Getting legal advice should be your first step. Depending on where you live, the legal process will vary, but all states allow those who inherited property to have the property transferred from the previous owner's name to theirs. Sometimes a lawyer will be needed for this process and other times the clerk of courts office can guide you through the process. Since the property isn't being sold to those inheriting it, it's unlikely that there would be any transfer tax.
Meeting of the minds After a death, most people are upset and not always able to think clearly about what they should do with the property. Some family members may want to keep it while others may want to sell the property right away and still others may think it should be sold after some time has passed. This is the time to have multiple round-table discussions to come together and try to have a meeting of the minds. Allow everyone to express their opinions and ideas about what should happen with the property. Depending on how different everyone's thoughts are, this could take several attempts to reach a decision. However, it's worth the time to try to determine who might want to keep the property and who wants to sell it immediately. Finding a viable solution for all could avoid a lawsuit that forces the sale of the property.
"If you can determine during the estate administration who really wants to hold the property, you may want to give [that person] the property as [that person's] share of the estate and those who aren't interested in a long-term hold can have the stocks and bonds," says John Sorensen, The Law Offices of John R. Sorensen in Del Mar, California.
Check the status of the property Go to the house and see what condition the property is in. Sometimes inherited property can be badly run down and need a tremendous amount of work before it is ready to be sold. There are cases where those who inherited the property find they have inherited a huge mess that needs immediate attention. If immediate attention isn't necessary, before you dive into fixing up the home, consult with a real estate agent to see which improvement projects might help the home sell faster. Be sure to keep good records of any and all costs for improvements; this will be important when determining if capital gains and state taxes apply.
Get financially organized Right away it is crucial to figure out if the mortgage has been paid and if there are any liens on the property. Check to make sure the taxes are current. Also, remember to keep the homeowner's insurance paid until the property is sold.
Stepped-up basis will likely help save taxes "The property gets what they call a 'stepped-up basis' meaning it's valued as of the date of the death," says Thomas Lee, Partner at LEE & KANE, P.C. in New York.
Therefore if the property is sold for about the same price as it's valued you will likely not pay taxes. "So even though the parent may have paid, for argument sake, $50,000 for a one-family house which is now valued at $500,000 or $600,000, when the [beneficiaries] sell it, it's as if they paid that $500,000 or $600,000 because it's been revalued based on the date of death," says Lee.
While the stepped-up basis still applies, note that the tax law is different if this is a spouse inheritance. Be sure to consult a real estate tax attorney for details.
The appraisal It's very critical to get an accurate appraisal so everyone understands the value of the home. This helps the inherited parties to see how much they can expect to receive after the home is sold. Once the appraisal comes in, have another meeting to determine your low-end offer that will be accepted.
Hire professionals to help Izzo says using a real estate counselor can be a huge help and relief because frequently beneficiaries will not agree on the sale price or other terms of the sale. The counselor will help to assess the overall situation and determine what each person wants—such as, do the beneficiaries want the highest price or simply to just get the property sold immediately?
He also recommends seeking expert help from quality real estate agents. "I usually suggest to [beneficiaries] that they talk to local Realtors and get a marketing plan from two or three which basically says, 'If I list this property with you, what would you do with it? Where would you market it? How would you market it and what is the current market price?'"
Having legal experts involved will help to lessen any possible feelings that someone is getting cheated. Taking these steps will help to ward off family arguments.