Ownership will depend on if the property was in a Trust; if not then the estate will need to be Probated. When you inherit a home, you may not want to live in it. In fact, you may already have a property of your own, or you may end up with shared ownership in a property due to how the inheritance is laid out. However, you may need to consider several things before you put an inherited home on the market. Selling inherited property in California comes with rules and potential tax implications.
Who sells an inherited home?
The party “in charge” of selling inherited property will depend on if the property is in a Trust or not. If in a Trust, Successor Trustee(s) will have been named and they will handle the sale. Probate is avoided. If there is no Trust, then the Executor or Administrator (if there is no Will) of the Probate will handle the sale. If you inherited the home outright and want to sell it, if in a Trust, it is a reasonably simple process since the person selling the home is also the sole heir. If there is no Trust, you will need to wait until the will passes through probate and the Executor of the Estate has been confirmed by the court before the home can be sold. With either sale, a Notice of Proposed Action (NPA) needs to be sent to all heirs and relate the terms of the sale. In Probate, the heirs have 15 days to approve the terms; in a Trust, the heirs have 45 days. Good attorneys will prepare a NPA and get it out to the heirs as early as possible.
Things to consider before putting an inherited property on the market
Before selling an inherited property, ensure you're prepared for the selling process and how it will likely impact you.
Getting everyone on the same page
When you have multiple heirs to a property, ensure everyone agrees about putting the property on the market. Sometimes, one heir may want to buy the others out, however that is complicated at best. Even if you inherited the home outright, you may want to talk to other family members about what you intend to do with the property. In some cases, family members may want to buy the property for sentimental reasons.
Consult with a lawyer to determine your full rights as you prepare to sell an inherited property, including how you can protect your rights and your finances if you decide to sell to a family member.
Cleaning out the property
Before you put an inherited property on the market, you may need to clean out your loved one's possessions. You may want to work with family members to clean out the property and make sure they can take any items that they want from the property. Consider:
- Were any items in the home left to other heirs, according to the terms of the will? You will need to ensure those items are distributed appropriately before you sell or remove other items from the property.
- Are there any items with primarily sentimental value that other family members want from the property that you do not want? If so, you may want to allow family members a chance to remove them.
- Are there items with significant financial value that other family members may want? Determine whether you want to sell those items to family members or give them to them outright.
Next, you may need to determine what you want to do with items that family members do not want. You can hold an estate sale, donate items, or arrange to sell valuable items. Often, the help of an Estate Planner or Organizer is great to have.
Upgrades and repairs
Sometimes, upgrades and improvements will add significantly to the overall value of your inherited property, allowing you to maximize your return on investment. This is particularly true if you have inherited a property that has fallen into disrepair over the years or has not been upgraded in quite some time. If your loved one left that ‘70s decor in the bathrooms or was still using kitchen appliances from when they moved into the home, taking on those upgrades can help move the property off the market faster and increase its overall value.
On the other hand, many people lack the funds to take care of upgrades to an inherited property, especially if they are still determining when the home will sell. Talk to us about options to pay for improvements out of escrow so you can maximize return to the estate without worrying about how to pay for it.
And sometimes, a property is either in such good condition or such bad condition that it just makes sense to sell it as-is.
Staging the property
As part of the selling process, you may need to stage the home to make it look its best. Take care of any necessary yard maintenance, especially if your loved one allowed those tasks to slide over the years. Curb appeal can make a massive difference in buyers' opinion of the property, and a few simple changes, such as mowing and trimming shrubs, can make the property much more appealing. Inside, your real estate agent can help you determine the steps you need to take to i make the property look its best.
Financial implications of selling an inherited property
There are several ways an inherited property can impact your finances. Talk to a financial advisor or lawyer to learn more.
The mortgage
When you inherit a property that still has a mortgage on it, you can sell the property to pay off the mortgage and then distribute the profits on the home among the heirs. In the meantime, you may be able to either transfer the outstanding mortgage to your name or make arrangements to continue to make monthly payments on the current mortgage.
Tax implications
California law typically does not place an inheritance tax on real estate, meaning you will likely not face taxes when you inherit the home. However, several types of taxes will apply when you choose to sell an inherited property.
- Property taxes: You must pay taxes on the house while it is in your possession.
- Capital gains tax: In California, you must pay capital gains tax on any profits you gain when you sell assets, including real estate. However, heirs will get a step-up in basis to the value at the time of death, so capital gains might be limited in a prompt sale..
- Transfer taxes: These are a percentage of the sales price charged when transferring ownership of a property, typically by cities and counties.
Work with a tax advisor to better understand what taxes you can expect to pay when you sell an inherited property in California.
Let RCS Property Group help with the sale of your inherited property
Selling an inherited property can be complicated, especially if you're trying to prepare the property for sale while juggling other responsibilities. At RCS Property Group, we have been selling Trust & Probate properties since the mid 1990’s. We can help you put your inherited property on the market and get it in front of interested buyers, increasing the odds of a smooth sale. Contact us today to learn more.
*Header photo courtesy of Shutterstock
