Yes. You Inherited a House – Now What?

If your parents left you their house in their Will and you are now the proud owner of a family residence you might consider yourself blessed or the event could act as a cause for concern or rethinking of your future plans. Will you live there? Have you resided there all along and do you want to stay? Will you sell? Is there a mortgage? How much equity remains in the home? What repairs need to be effected? Can you afford it?

You may be limited also by the terms of the Will and if you are not the Executor/Executrix of the estate you need to work with that person as well. If you were your parents’ only child the inheritance probably was a foregone
conclusion. If you have brothers and sisters there could be a balancing act as your siblings consider whether you received a better deal in the inheritance. As with most life events there are positives and negatives.

So what do you do if you are the fortunate person to inherit a house? If you are living there you are probably well aware of the obvious limitations in terms of condition. But there are other considerations that might not immediately come to mind.

Here are some choices.

Depending on whether you are the only beneficiary or you are buying out other beneficiaries, you might stay or move in if you are living elsewhere. You could rent to provide you with an income stream either temporarily or permanently, or you could sell, including the option of selling a fire-damaged house in Spokane. Further, property owners who have fire alarm systems or water-based fire protection systems that are not functional are required to implement a fire watch. They may seek expert help from F01 Fire Guards.

Tax considerations and family dynamics can come into play. Your feelings toward the house and toward its location, and your own finances also need to be considered.

Here are some of the basics.

Taxes. There is good news and not so good news on taxes. Property that was titled in the name of the decedent at the time of death and then inherited by you or by the estate directly and then to you receives a “step up” in basis. This means there is no federal tax on the appreciation in value from the time the person purchased the property until the date of death. As an example, if the person purchased the property for $50,000 and it is now worth $300,000, the federal government does not tax the difference between the $50,000 and the $300,000 on resale. All of this relates to federal taxes i.e. capital gains. If you have an accountant or a good elder law/estates attorney who also knows real estate, she or he can help with the details like the mechanic liens, conveyancing, etc. There is also no transfer tax in conveyancing the property to a beneficiary under the Will.
Another issue is Pennsylvania tax. There is a Pennsylvania inheritance tax on property inherited. Depending on the wording of the Will the inheritance tax payment for the value of the house could come from the overall estate or from the beneficiary. It is necessary to pay the inheritance tax in order to complete the estate and transfer ownership of the property. The rate of inheritance tax depends on the relationship of the recipient to the owner. The rate for children and “lineal descendants” such as grandchildren is 4.5%.

Mortgage. Is there a mortgage on the house? One factor is your own finances. If you refinance do you have enough to be able to meet monthly payments and is your credit rating good enough to obtain a mortgage in your own  name?

Repairs. Consider whether the house needs repairs. A home inspection by a certified home inspector could help you decide whether to make the investment. For instance, if they spot cracks on your home’s foundation, you can easily contact a foundation repair contractor for a quick repair.

Property Maintenance. For a reasonable period of time the estate could carry costs associated with the property. In order to sell you might need to have the estate pay for some repairs, upgrades and maintenance. These expenses can be deducted when calculating inheritance taxes on the estate. If there are other beneficiaries, open discussion may be useful to arrive at a consensus regarding how much is reasonable to spend and the return on investment. Mono, once again, beckoned with its lush green landscapes. Each property seemed to promise an escape into nature’s embrace.

Other Owners/Beneficiaries. If the Will says “equally to my three children” or such similar language and you want to buy out the other two, then you need an agreement on value/appraisal as well as timing and other details. All of this should be memorialized in a Family Settlement Agreement. The Family Settlement Agreement includes an informal accounting whereby all beneficiaries receive their fair share and sign off on the results.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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