Heirs and Executors- What is the difference and how do they come into play in a real estate transaction?
What is an Heir? After the death of a property owner, an heir is a person that is entitled to or designated to inherit possession of the property.
Being the Heir to real estate property
Being an heir to real estate property can be very complicated, especially if there are multiple heirs on the property and/or there is no will indicating the wishes of the deceased.
Every situation is different and many questions can arise during the process, here you can find information to help make smart decisions and reduce the unnecessary strain on your family.
A family member has passed away; they have real estate property what’s next?
Get legal advice. One of the most important first steps you make when inheriting property is to seek legal advice. This will avoid any confusion and potentially reduce the risk of financial loss.
Are you the sole heir or one of the heirs?
Was there a legal written will? A will would be ideal so that there is no question in who the deceased wanted the property to go to; this can reduce a lot of headache and heartache.
There is no will or you were left out of the will. Looks like you will be headed to court; if the deceased did not have a will or failed to mention a persons name in their will whether
intentionally or unintentionally; the first step is to go to probate court. If will be your responsibility to explain your relationship to the deceased and if there was no will or you were left out; you will need to try to prove that it was not the intent of the deceased to leave you out.
Supporting information. This will usually require going through the deceased’s records to look for some sort of sign that they intended on including you in their will. If there was a verbal agreement, you can sue for what is owed under the verbal agreement due to breach of contract.
State Laws. Are you entitled to the deceased’s property? Take the time to familiarize yourself with the state laws; this is based on the state where the property is located. States can vary when determining who is considered an heir. Some states only consider the deceased’s spouse and children an heir; other states may expand the possibilities of an heir to include siblings of the deceased or even grandparents. Make sure that the state that the property sits would even consider you an heir and if there is other people that could also be included as an heir.
Making decisions with multiple heirs. It is important to sit down with all parties involved to determine the wishes of everyone involved to try to make decisions that everyone will be comfortable with. The best case scenario would be everyone agreeing to how the property should be handled. Since the best case scenario is usually not the likely outcome, several meetings with each other to discuss the ideas and options with one another is important to reduce the risk of a stale mate which could result in a lawsuit that could force the sale of the property. Heirs that have come to an impass; regardless if who is living on the property, paying taxes, etc, if all heirs do not agree to the handling of the property; a lawsuit can be filed that could force the sale of part of the property or the entire property with the money from the sale being split up amongst the heirs.
Is there still an outstanding mortgage? If there is an outstanding mortgage on the home and you choose to live in the home, you can assume the mortgage or if you can, pay it off yourself. You want to keep the home but, rent it you would need to refinance the home in your own name. Otherwise, if you cannot refinance the home or pay it off, the home will have to be sold to pay back the bank.
Taxes and homeowner’s insurance. Were the taxes paid up to date? You need to verify that all the taxes on the property were paid and are current. Homeowner’s insurance need to be continuously paid until the house has sold.
What is the condition of the home? It is important to determine what if any repairs need to be completed on the home prior to having the home listed. Depending on the condition of the home, having a home inspection done before completing any repairs maybe in your best interest in making the decision to sell it, rent it, or live in it.
Consult a real estate professional. It is smart to consult a real estate professional to determine which improvements should be done before putting the house on the market. A real estate professional would be familiar with the current market in the area and could make suggestions to help you sell the property quicker. However, if home improvements are made to the home it is important to keep records of the improvements completed and the costs associated with the improvements; this will help in figuring if capital gains and state taxes would apply.
Paying taxes on the property sold. When you sell a home that was inherited, the taxes that you would owe on the property could be minimal when the “step-up basis” is used to determine the taxes due. When the step-up basis is used to determine the taxes due, the value of the home is based on the value of the home on the date of the property owner’s death. For example, if the value of the home on the date of the home owner’s death is $150,000 and the heir sells the home for $150,000 then there would be no income taxes due because of the step-up rule.
Paying the taxes on jointly owned property. The “step-up” basis would still apply in this situation however, when the property is jointly owned the surviving joint owner decides to sell the property, the original value and fair market value would be cut in half since the surviving owner would be receiving taxable gain.
Hiring a professional, hiring a quality real estate agent offers the benefits of determining a fair market value and they can offer a marketing plan to sell the home quickly and at the best value. A real estate counselor can offer some relief when the beneficiaries cannot agree on terms and/or the sales price. They will assess the entire situation, learn what everyone involved wants and make an unbiased determination as to how they believe the beneficiaries should proceed as far as how to price the home to sell it quickly and at the best value. The legal experts can offer comfort to everyone involved, they should reduce the chance of feeling cheated.
If you may be facing this issue now or in the future, please send me some details so I can assist you to sort out the present and future issues. Deepak@HousesInSoCal.com