What to Do When You Inherit a House
2023-04-27
Posted at 18:15h
in Asset Protection, Estate Planning
When you inherit a house, there are a number of important steps you should take to protect your interests. Inheriting a house after a loved one passes away can be a complex and emotional experience. We hope this guide will help you through the process, so you can make informed decisions about what to do with the property.
What to Do When You Inherit a House
1: Understand the Probate Process
Probate is the legal process of determining the validity of the will, identifying the decedent’s heirs, and transferring ownership of assets to the heirs. If the previous owner of the property did not have a living trust or other measures in place, then you may need to go through probate before you can transfer ownership of the property to yourself.
In Arizona, the probate process typically takes about a year. First, the court will appoint a personal representative to manage the estate and distribute assets to the heirs. If there is a will, then the court will determine if it is valid and distribute the assets accordingly. But if there is no will, then the court will determine who inherits the property.
2: Get the House Appraised
Before you make any decisions about what to do with the property, you must first understand its value. Getting a professional appraisal will give you an accurate estimate of its worth. This information is important for tax purposes, and can help you decide whether or not to keep the property.
3: Understand the Tax Implications
When you inherit a house, you may be subject to estate taxes, gift taxes, and capital gains taxes. Arizona has no estate tax, but the federal estate tax will still apply if the value of the property is over $12.92 million (as of 2023).
Even if you decide to sell the property, you may be subject to capital gains taxes. These taxes are based on the difference between the property’s value when you inherited it and its value when you sell it. However, if you sell the property soon after inheriting it, you may be eligible for a stepped-up basis. This means that the value of the property is based on its fair market value at the time of the owner’s death, which can help reduce your tax liability.
4: Decide What to Do with the Property
Once you have a good understanding of the value of the property and the tax implications, you can begin to think about what to do with it. There are three basic options:
- Keep the property—If you have a sentimental attachment to the property or need a place to live, you might want to keep the property. This can be an ideal option as long as you have the financial means to maintain the property and pay the associated taxes.
- Sell the property—If you don’t want to keep the property, selling it is always an option. A sale can provide you with a lump sum of cash that you can use for other expenses or investments. Keep in mind that there may be taxes and fees associated with selling a house.
- Rent the property out—If you don’t want to sell the house and don’t want to live in it either, renting it to someone else is a good option. A rental can provide you with a steady stream of income. However, being a landlord comes with its own set of responsibilities and expenses.
If the house you inherit is paid off, you may have more flexibility in terms of what you decide to do with the property. But it’s important to carefully consider your financial situation and goals, as well as the legal and tax implications of each option before you make a decision.
5: Transfer Ownership of the Property
If the probate process has been completed (or has been skipped with a trust) and you have decided to keep the property, you will then need to transfer ownership of the property into your name.
You’ll need a copy of the probated will and a copy of the previous owner’s death certificate in order to change the deed. It’s important to work with an attorney to ensure that the transfer is completed correctly and that there are no issues with the title.
6: Update the Insurance and Utilities
If you have decided to keep the property, you will also need to update the insurance policy and transfer the utilities to your name. These actions will help ensure that the property is properly protected.
7: Address Any Mortgage Issues
If the decedent had a mortgage on the property, then you will need to address any issues related to the mortgage. This can include contacting the lender to notify them of the owner’s passing, and determining whether the mortgage will need to be paid off or if it can be transferred to the new owner.
If you decide to keep the property, you’ll need to determine whether you are able to take over the existing mortgage or whether you will need to refinance the property. If you are unable to do either, you will need to consider selling the property to pay off the mortgage.
8: Consider Estate Planning Assistance
If you plan to keep an inherited house, it’s crucial that you consider your own estate planning needs. Placing real estate property in a living trust protects it from probate while allowing you to maintain control over the asset during your lifetime. Creating or updating your trust and updating your beneficiary designations will help to protect your newly acquired asset.
Arizona Estate Planning Lawyer
At Phelps LaClair, we know that all the details involved with inheriting a house can feel overwhelming. Working with an experienced estate planning attorney will help you make the best decisions about your new asset.
We’ll explain how inheriting a house can affect your estate plan, and how to best protect the property if you choose to keep it. Call us at 480-892-2488 today to schedule a free consultation.
Images used under creative commons license – commercial use (4/27/2023). Photo by Tierra Mallorca on Unsplash
