If you have suddenly inherited a house, you may not be prepared for the questions and issues that can arise. And if you make the wrong decisions, you will likely encounter financial, emotional, and family problems before long. What can go wrong when you inherit a house?
Here’s a list of some of the things that can come up when you inherit a house and possibly cause problems or things that could go wrong and some solutions.
What Can Happen When You Inherit a House
The House May Need To Go Through Probate
Probate is the legal process where someone is made Personal Representative so that they can settle an estate. This mostly happens when there are assets, such as a house, that need to be sold when owned by a deceased person. The process can be very simple if there is a proper will, or it can be a process that is tied up in court for months. And if there are heirs that disagree with the will or state law, a probate case can last more than a year. According to the probate attorney we have worked with for years, a proper and legal will will prevent a lot of issues in a probate case. A Personal Representative is only responsible for selling the assets of the estate and must divide the money from the sold assets according to the will or divide them equally to each heir according to state law.
As previously mentioned, a probate case can be over quickly or drag on for months. A probate can take as little as a week to be completed or several months. The time a probate takes is determined by if there is a will or not, is anyone contesting the probate and what is dictated by state law. A valid and legal will is required to ensure the process will move along as fast as possible, and it will detour anyone from contesting the will.
You May Owe More Taxes than Anticipated
Most people or estates don’t have to worry about estate tax because of the very high exemption (in the millions as of this writing), and the estate tax was even temporarily suspended in 2010. But also mostly suspended in 2010 was the step-up provision. So in considering what can go wrong when you inherit a house in Utah and when you sell the house, you may need to consider the stepped-up capital gains situation which is explained in the next paragraph.
The step-up provides that you pay capital gains taxes only on the gains above the fair market value at the date of the decedent’s death. It has nothing to do with the price the decedent paid for the house – unless the step-up falls in one of the years when it was changed. In that case, you may owe a lot more in taxes than you bargained for. ASK YOUR TAX PROFESSIONAL to make sure, but most estates or heirs will owe no taxes.
The Mortgage May Be Bigger than You Thought
This following applies only if you intend to keep a house rather than sell a house that is in an estate.
Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off through some sort of insurance policy. These days, though, it’s common for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds. A lot of the time these Reverse Mortgages have low enough balances that there is equity in a house you may sell. A reverse mortgage will be paid off when the house sells, and the bank will usually give you a year to complete the sell before foreclosing on the reverse mortgage. But, fees and interest add up FAST on a monthly basis with a reverse mortgage…sometimes more than a $1000 a month.
What you do need to know if you want to keep the house, is a reverse mortgage cannot be assumed by heirs for any reason; it must be paid off. And in the case of a standard mortgage, you can assume the mortgage only if you live in the house yourself. So if you intend to rent the house, you may have to refinance it in your own name. This could vary from bank to bank, so please talk to the mortgage holder if you want to keep the house and the mortgage to the house.
The House May Need Repairs and Upgrades
With respect to what can go wrong when you inherit a house in Utah, this one may be the most costly. Most of the time, people inherit a house from a deceased elderly parent or very close relative. Besides not having the physical ability to perform maintenance and upgrades, many elderly people don’t have the money for it either. And if they do, they may simply choose not to do the repairs because they know they won’t be living in the house for very many more years. This happened in my own family where a loved one had the money for repairs but chose to never fix the house up.
If you plan to live in the inherited house, this may not be a huge concern. But if you intend to rent it or sell it, you’ll have to make home repairs to make it presentable and upgrades to bring it up to code and meet other legal and insurance requirements. Roof Repairs, installing a new HVAC system or re-wiring the house will involve a big chunk of money.
You May Have Problems with Relatives and Joint Heirs
But what if you’re not the only heir? That can be a problem. Suppose you and your siblings inherited the house jointly. If you want to sell it, your brother may want to rent it, and your other brother, to live in it himself. You can see what a powder keg waiting for a spark this is, and issues like this come up all the time.
In most states, joint heirs of a home are considered tenants in common, and one heir can force a sale if it comes to that. The process, however, is expensive, and the emotional and familial consequences are likely to be highly unpleasant. The administrator or executor of an estate may need to step in and settle the estate according the state law or a will.
So what can go wrong when you inherit a house in Utah? Quite a lot, actually, if you’re not up to speed on tax laws, mortgages, and upgrade issues. It is best to contact a qualified professional to help head off these issue quickly. Perhaps a quick sale of the house is something the estate wants to consider.