Stress and emotions surrounding inheriting real estate can make a deceased loved one’s generosity seem more of a curse than a blessing. Especially when there’s more than one heir, making an early decision on how to handle the property can alleviate stress and prevent problems caused by procrastination.
Things to Do First
Upon inheritance, an heir needs to cancel unnecessary utilities (e.g. cable, internet) and make sure needed utilities stay on. Heirs often delay the next step, which is dealing with the possessions their loved one left in the house. In this instance, procrastination can be costly, both emotionally and financially. Joint heirs may want to meet at the home and distribute the goods as soon as possible. Letting the home sit unoccupied but filled with stuff generally leads to additional maintenance costs when the task is finally dealt with.
Before deciding what to do with the property, heirs need to know if the property has a mortgage. Sometimes the estate settles the mortgage, or it may have been paid off by the deceased. If there’s still a mortgage, heirs have to assume the payments while deciding what to do with the house. Ultimately, heirs need to decide if they’d like rent, move in, or sell the property.
Whether heirs intend to rent to a long-term tenant or on a short-term basis to vacationers, renting a property can be time-consuming and labor-intensive. If there’s more than one heir, hiring a property manager may be the best way to avoid disputes about who should market the property, screen tenants, collect rent, distribute money, and handle maintenance. Renting requires landlord insurance, which offers more coverage than a traditional homeowner’s policy. Maintaining ownership of the property also includes responsibility for property taxes and home repair.
Turing the house into a personal residence is easy when there’s one heir. If there’s more than one, the heir who wants to move in has to buy out the others or pay rent to them. Moving in involves taking on the typical responsibilities of homeownership, including property taxes, on-going maintenance, utility payments, homeowners insurance, and possibly assuming the mortgage.
Heirs who sell have to pay capital gains tax on the difference between the home’s value at the time of the previous owner’s death and the sales price. The heir will have to pay for any costs associated with selling the home such as for staging, closing, or repairs.