Whether having a home passed on to you is a welcome gift or an upsetting surprise, it’s safe to say that this kind of inheritance is considerably different from receiving a few more zeroes in your bank account or a full set of bone china. Here are the steps experts recommend taking to make the experience as positive as possible.
Keep the lights on
One of the first things that needs to be done is to update the homeowners insurance policy, which can lapse if the house is unoccupied. Make sure coverage continues by contacting the insurance company and making any necessary changes.
Then track down all utility accounts. Cancel those that are not needed, and make sure the bills are paid each month on the others. No matter what you’re planning to do with the house — or until you decide — you probably don’t want the lights to go dark or for there to be no heat or running water. You might need to arrange for yard upkeep as well.
Also make sure you’re keeping current with property tax payments and any mortgage.
Handle the housekeeping
One of the highest hurdles many inheritors face — whether they’re leaning toward selling, renting or living in the house — is what to do with all the stuff filling it.
If there are sibling inheritors, Pat Simasko, an estate planning attorney at Simasko Law in Mount Clemens, Mich., recommends meeting at the home and using a round-robin approach, with each brother or sister taking turns choosing items they want. (Don’t involve the in-laws, he says.) Then the grandchildren get a turn, then any other relatives you jointly want to include. The remainder can be sold in an estate sale, or donated to charity.
Putting off what can be the painful task of going through a parent’s belongings causes many inherited homes to be suspended in time, sometimes for years. But not taking action costs you, both financially (maintaining a house is never cheap) and emotionally. “Get it handled,” Simasko advises. “Don’t drag it out.”
Make a plan to love it or list it
Similarly, try not to put off making a decision about whether you’ll move into the house, rent it out or sell it. If you’re unsure which way to go, here are points to consider on each option.
- Expect property taxes to rise, perhaps significantly. The house will be reassessed at the current market value.
- Get a home inspection so you’re aware of any maintenance or safety issues that need to be addressed and find out the cost of repairs.
- Something else to keep in mind: If siblings inherited a home as joint owners — such as through a quitclaim deed that made them instant co-owners at the time of the original owner’s death — they’ll need to agree on what to do with it. If one of the new owners doesn’t want to sell, the others have no recourse except court.
- If the home was inherited jointly with siblings and you want to live there yourself, they will need to be compensated. This might be in the form of rental payments. Or you can buy them out, perhaps by mortgaging or refinancing the property, or by making the house part of your share of a larger total estate.
- Depending on the location and condition of the home, renting it could be a source of income. But beware, says Simasko. “A lot of times families say let’s rent it and they’ve never been involved with that before, and it turns into a complete nightmare,” he says. “You get the wrong person in there, then you’re dealing with damage or eviction, and it might not be the best business decision.”
- To minimize hassle and potentially costly mistakes, consider hiring a professional property manager to handle the marketing, leasing and managing.
- Make sure you’ve had a home inspection, addressed any safety issues and taken out a landlord insurance policy. “When you’re renting, there’s a lot of liability many people aren’t aware of,” says Lukas Krause, CEO of Real Property Management in Salt Lake City.
- You’ll also want to check on any relevant city ordinances or homeowners association rules on renting.
- Considering making the property a vacation rental? "You become more like a hotel manager and it can become a full-time job," Krause says, adding that management and maintenance costs also can go way up in this scenario.
- You won’t pay capital gains tax on any increase in the home’s value during the deceased owner’s lifetime, only on any increase in value between the time of inheritance and when you sell it.
- If you don’t live in the area the house is located, it can pay to have more than one real estate agent come by for a consultation on a potential sales price and marketing plan.
- Be sure to ask a real estate agent his or her opinion on investing in renovations versus selling as-is. “Of course, updating is can be beneficial — most buyers do not want to move in and have to renovate — but it’s costly and not always imperative,” says Erika Barrett, a real estate broker with Keller Williams Domain in Birmingham, Mich.
- As with any sale, but especially for a house that hasn’t been updated in recent years, smaller improvements potentially can go a long way. And you don’t have to do them all yourself. Hire a painter to repaint top-to-bottom in neutral tones, or get a professional landscaper to increase curb appeal. And don’t forget, Barrett says, that simple “decluttering and cleaning to the point of sparkling are the two most important things you can do to sell a home without spending a lot of money.”