When someone in your family dies, there is a good chance that he or she had real estate (either in the form of a personal residence or in investment properties) that will be subject to either probate, inheritance taxes, or both. In cases where the real estate value is high or completely paid off, this can represent a great financial boon; in others, where there may be a mortgage on the property, the house or land may end up going to probate to pay off existing debts before you’ll ever see a penny.
Depending on your relationship with the deceased, the process of finalizing all the paperwork and transferring the property will vary. Here are a few of the more common situations:
If you are the spouse of the deceased, you will most likely gain control over the home and/or property without much hassle. In cases in which you owned the property jointly, you will simply provide a proof of death (a death certificate) and proof of your identity (usually a copy of your driver’s license), and the title(s) will be transferred to your name alone. No taxes other than your typical annual ones will occur.
Part of our ongoing series:
If you are the spouse of the deceased and you did not jointly own the property, there will be additional considerations. Depending on if there was a will that named someone else as the beneficiary, you may not be entitled to the home or land as you are other types of property that go directly to the spouse of the deceased.
If you are the beneficiary of the will (perhaps a child or relative of the deceased), or if you share the beneficiary status with a few other people, you will have to wait until the estate goes through probate. The Executor of the Estate will then determine what funds will be necessary to pay off any debts before you will receive your share of the profits from the sale of the real estate.
It’s important to note that in cases in which there is one beneficiary, but the estate is heavily in debt, you may not ever get the actual property. That’s because creditors are legally entitled to the estate’s proceeds before you are. The house or property may actually be sold to cover these creditor debts, thereby not passing directly to your hands. You may, however, be given an opportunity to purchase the real estate before any outside buyers—though you can expect to buy it at current market value.
In cases in which there are several beneficiaries, the same is true, except that you most likely won’t ever see the property remain intact. Unless there is a stipulation in the will that clearly outlines who gets what percentage control of the property, there may be a disagreement about how to use that
property. As a group, do you sell the property and split the proceeds? What if one of you wants to keep the home because of sentimental value? If you offer to “buy out” the other beneficiaries through the estate, what is a fair price—the current value, or what the deceased originally paid for it? There is no single answer, and it’s likely that you will end up having disagreements regarding what is fair.
This is one reason so many people hire estate lawyers to help facilitate the process. No other type of inherited property has the potential to cause rifts in the family, and this is one time when tensions already tend to be running fairly high.
If the home is paid off and there is no need to sell it to pay off debts, then the ownership of the property may be transferred to you. Of course, that means taxes are on their way, too.
Depending on your location (city and state), you can be subjected to federal, state, and/or local inheritance taxes if you inherit a piece of real estate property. This rate is determined by the value of the property (as determined on the day of death of the deceased rather than the original purchase
price), as well as your relationship to the deceased. All combined, this tax can take the form of up to 30 percent of the total value.
This tax can also be included above and beyond basic estate tax (as in the tax you pay on any inheritance arising out of the deceased’s combined assets), which means you could be facing taxes for both the goods/money you inherit as well as the real estate. These taxes are an issue that many people are unhappy about, but since they are only in effect when the amount you are bequeathed reaches the one or two million dollar mark, it may not always be applicable to your situation.
It’s best to talk with an estate lawyer or financial advisor before you pay any taxes or make decisions regarding the estate, since there are ways to avoid capital-gains taxes (such as using the home as a personal residence or selling it within a certain time frame). You’ll also most likely need a real estate agent, an appraiser, and possibly even a real estate lawyer to help you work through all the steps.
Before You Make Any Decisions
Real estate can be difficult to deal with after a loved one dies because of the emotional ties so often attached to it. A house that belonged to the deceased might look like an investment opportunity to one beneficiary, but to another, it might be a highly personal and sacred place it would be unthinkable to sell. Real estate isn’t easily divisible unless it is sold, and personal attachment might skew your idea of what it is really worth.
The good news is that you rarely have to make a decision right away. In most cases, an estate going into probate is a hassle that ties up the deceased’s money and makes it difficult to put all his or her affairs in order in a timely manner. When a personal home or piece of land is on the line, this is a great moment to talk with your family and determine how to move forward with selling, buying, or dividing the property. Losing a loved one and funeral planning for them is never easy, and it’s important to take whatever time you can to grieve properly and remember what it is that ties you and all your family members together.
Our next post in this series will be released on Wednesday January 26, 2011 and will be about what to do with a loved one’s online accounts when they die.