Inheriting real estate can be a mixed bag. On the one hand, getting land or a house from a loved one can be a beautiful way to keep property in your family, can be a touching reminder of the house you grew up in, but on the other, it can keep a large, oftentimes valuable asset tied up in probate court, and leave you with surprise real estate and inheritance taxes! So: what should you expect when you’re inheriting real estate?
Real Estate in Probate
Unless you’re the spouse of the decedent, in which case, transferring the property should happen quickly, easily, and most excitingly, without tax penalties, you can expect the probate process to be a little bit of a headache.
After the will is filed by the executor and the deed is put in your name, you may have to pay inheritance taxes. The rate will depend on what state the property is in, and your relationship to the decedent. Even if you decide to sell the property, you may be liable to paying a capital gains tax based on its value.
This is why it’s a good idea to get any inherited property appraised. This will give you a good idea of the value of your property. It may also give you a starting point for easy improvements to bring the value up. However, appraising a property can also bring up your property taxes if the place has appreciated.
You may be inheriting not just a property, but a mortgage as well. You may find that you have to continue paying the mortgage. In some cases, the bank will treat the passing of the borrower as a trigger for the full amount to be paid off. Since you are also a new owner, you will also have to get the home reinsured.
Finally, if you are sharing the inheritance with one or more other people, you should consult with a lawyer. Problems may come up when some owners want to share or others don’t, or with other disagreements.
A good way to save your family trouble is to have your house under a Transfer-On-Death deed. This means your property bypasses probate, and instead goes directly to the new owner. This is only available in certain states, so be sure to consult with a lawyer before trying to execute a TOD deed.