When a home is passed on to adult children after the death of a parent, there are three typical paths that beneficiaries can choose: move into the house, sell the house, or rent it out. If you and/or your siblings recently inherited a house and are uncertain about the best way to deal with the asset, a Nashville estate planning attorney can help you work through the following considerations relating to the property:
Option One: Move into the House
- If you decide to move into the house, you may have to anticipate an increase in property taxes as the current market value of the house will be reassessed
- You may want to conduct a home inspection to check if there are maintenance and safety issues that must be addressed immediately. You can also calculate the cost of renovation and repairs. The good news is that if you grew up in the home or talked with your parent(s) on a regular basis, then you probably already know of any maintenance “quirks” that your parent(s) dealt with when deciding whether you want to take them on as your own.
- There can be complications if you have siblings who are also co-owners. If you want to live in the home yourself, the other siblings will need to be compensated. You may do this through rental payments, buying out their share by mortgaging or refinancing the property, or by making the house part of your share of a larger total estate.
Financial and legal obligations of keeping the house
By moving into an inherited home, you are therefore accountable for the property maintenance and all its corresponding taxes and insurance payments. You are also responsible for any legal obligations arising from homeownership. Make sure these are responsibilities that you are prepared for.
Option 2: Selling the House
- Unsettled financial obligations can make selling the inherited house a bit problematic. You need to pay all the remaining debts out of the total sales of the property. And it gets more complicated in instances when the money owed on mortgages, taxes, judgments, and/or liens is higher than the price of the property itself.
- If the house you have inherited hasn’t been updated in a long time, major cleaning and minor renovations can potentially work to your advantage. On the flip side, renovations, in general, will cut into the profit you are expecting. Make sure you are focusing on changes that will give you the biggest bang for your buck.
- You only have to pay capital gains tax on any appreciation in the home’s market value from the time you inherit it up to the time you sell it.
- You also would need to consider the commission of the real estate agent should you need one.
Financial and legal obligations of selling the house
You may have to deal with a lot of challenges to get the house in a saleable condition, but once you sell the property, you are free from the responsibility of paying for its maintenance, taxes, insurance, and any other legal matters related to homeownership.
Option 3: Renting the House
- You can generate a passive income through rental payments for the house. The demand and rate will depend on the location and condition of the property.
- It pays to check on any relevant city ordinances or homeowner’s association rules on renting.
- You could consider hiring a professional property manager to handle the marketing, leasing, and managing of the house if you want to minimize hassles and costly problems.
- You have to provide precautionary measures and repairs for any damages found in the house you are offering for rent. Being a landlord entails a lot of liability.
- If you consider making the property a bed and breakfast or vacation rental, know that management and maintenance costs can go way up in this scenario. And, you also have to perform duties similar to a Hotel Manager should you really push through with this idea.
Financial and legal responsibilities of renting out the home
You are legally and financially responsible for the house as the homeowner. Furthermore, you now have the responsibilities of being a landlord and you should seriously consider the additional accountability of renting out the home.
Inheriting a house can either be a blessing or a burden depending on the way you will handle it. If you are still undecided, it is wise to weigh your options thoroughly by discussing it with an experienced attorney who can give you a balanced perspective on the matter. We encourage you to schedule an appointment today with our Nashville estate planning and probate attorney, April, at (615) 846–6201 so you can best understand how the inheritance will affect you or your family.