How To Have A Smooth Transition & Prevent Unforeseen Issues After Inheriting A House

Purchasing a new house can be a thrilling experience, but inheriting one from a loved one who has died is often fraught with other emotions. Along with managing your grief (which experts say manifests in various stages), you will also have to navigate a web of complex legal, financial, and practical issues. If you weren't involved in the estate planning process, it may come as a shock to suddenly have a home — and perhaps a mortgage payment — to handle. Danny Karon, a law professor and manager of the consumer wellness website Your Loveable Lawyer, spoke with House Digest in an exclusive interview about how to have a smooth transition and prevent unforeseen issues after inheriting a property.

"Sad as it is to inherit a house, it's immeasurably easier than locating and buying one," Karon said. "I understand this dynamic first hand because I inherited my uncle's house," he later added. The location, size, and condition of the property are just a few factors to consider when purchasing a home. To avoid feeling overwhelmed, it's important to look at your new property through the same lens as you would if you were a potential buyer. You also need to carefully evaluate budgetary matters. "You'll need to arrange for monthly mortgage payments if your family member didn't own the house outright," Karon explained. "Paying a mortgage payment is no different than paying rent, except you can deduct the mortgage interest from your taxes."

It was Benjamin Franklin who said that in this world, nothing is certain except death and taxes. The estate will likely be required to pay federal estate taxes, and you may need to pay state inheritance tax on the portion of the assets you receive. In addition to those expenses, ongoing utility bills, and property taxes can also add up. Whether you inherit a tiny timeshare, a palatial family estate, or something in between, you're likely to inherit other costs that you might not see coming. "If you inherit a house through probate (meaning through the probate court process), the estate will need to pay the executor, whose attorneys' fees could mount quickly," Danny Karon told House Digest during our exclusive interview. 

Although it can be difficult to discuss end-of-life plans with your loved ones, having the hard conversations before a loss can help to ease financial burdens after one. It's also an opportunity to encourage organizing and holding onto important home records like surveys, deeds, insurance policies, and even appliance warranties. "To avoid probate and an expensive executor, it's important to establish a trust before you pass away, because this way, everything is distributed privately and according to your wishes," Karon told us. There are several different types of trusts. Each can be a powerful tool for creating generational wealth, but be sure to consult with an attorney and financial planner to pick the right one for your situation.

Whether you know you'll inherit a house or it happens suddenly, it's important to decide if you want to keep or sell it. If the property isn't fully owned, you need to understand what happens if you inherit a house with a mortgage before you can make the best decision. "Make sure you're able to make the mortgage payments on it," Danny Karon cautioned during his exclusive interview with House Digest. It's important not to miss any payments while you determine the best course of action, which may involve discussions or negotiations with others if you aren't the sole heir. Be realistic about what the house is worth by understanding market conditions and any repairs that are needed. An appraiser and real estate agent can help you determine a fair value.

"If you like the house, as I like my uncle's, go ahead and keep it," Karon said. Moving into an inherited home isn't the only option, either. "You can always rent it out, although, you'll need to ensure that no restrictions exist in the neighborhood or building, proscribing renting, including AirBNB or VRBO."

If you are unable to cover the mortgage or are uninterested in becoming a landlord, you may determine that the best outcome is to sell the home. In this scenario, you may be able to reinvest any proceeds into another property to avoid incurring capital gains tax. "The sale will be subject to any mortgage on the property, plus, you'll be responsible for brokers' commissions," Karon noted.