Key Takeaways
- It’s important to know that the process of inheriting a property from your parents in California typically involves probate, a legal process that transfers ownership of the property to the heirs.
- During probate, taxes, debts and expenses will be settled and when probate closed, you will officially own the property.
- As the new owner you will be responsible for maintaining and paying taxes on the property, if you decide to keep it.
- It’s a good idea to consult with a real estate agent to understand the market value of the property, and the costs and responsibilities involved with owning it.
- You have the option to keep, rent or sell the property, consult with a financial advisor or attorney for advice on which option is best for you and your financial situation.
Inheriting property from parents can be very challenging. You have legal and financial challenges to juggle alongside the emotional challenge. We understand how overwhelming the situation can feel, so we outlined all you need to know about what lies ahead.
How Does Inheriting a House from Your Parents Work?
In most situations, you inherit a house through a last will or a trust. Here’s how the inheritance process looks in both cases.
Steps of Inheriting a House from Your Parents
- Connect with the Executioner (probate court or trustee)
- Look over the terms of inheritance
- Know any co-inheritors or outstanding debt..
- Accept the inheritance
- Add your name to the Deed
- Live in, Rent, or Sell the property
Inheriting a House from Your Parents Through a Will
When you inherit a house in California through a will, beneficiaries must go through the courts to receive the property.
There are three exceptions:
- The beneficiary was a co-owner of the house and is already on the deed.
- The house had a beneficiary deed (or transfer-on-death deed).
- The beneficiaries receive the house through a trust.
However, if the will is the only document that names you as the house’s beneficiary, you’ll need to go through the court system in a process called “probate.”
Probate decides several details, including:
- Whether the will is valid
- Who the legal beneficiaries are
- How much the inherited property is worth
- Whether there are any outstanding debts or financial responsibilities that need to be cared for before you receive the inheritance
- How to transfer ownership of the property to the beneficiaries.
If there’s a legally binding will, you’ll work with an executor who will follow the wishes in the will. However, if there’s no legal will, an administrator will pay the remaining debts from your parent’s estate and distribute the property to the legal beneficiaries.
On average, this process takes 9-18 months.
Inheriting a House From Your Parents Through a Trust
The process will be much shorter and more straightforward if you receive a house through a trust. Instead of the courts, there are only three people involved in this process:
- Settlor: Your parents who created the trust
- Beneficiaries: You and whoever else is inheriting the property
- Trustee: The appointed person to hold then pass on the house’s title to the beneficiaries
Because the trustee becomes the property’s temporary owner, the ownership transfer is smoother. First, you’ll wait for the trustee to inform you of your inheritance and set a day for distributing it. Then, they’ll transfer the deed to you.
The process of inheriting a house through a trust can take a few days to a few weeks, depending on whether there are legal issues tied to the inheritance or disputes from beneficiaries.
Not sure How to Navigate Your Inheritance?
If you’re in need of cash or not interested in becoming a landlord, selling the property may be the best option. However, if you’re comfortable with the idea of being a landlord and have the means to maintain the property, renting it out can be a good source of passive income.
If you have sentimental value to the property and it’s feasible for you to take care of it, keeping it as your primary residence can be an option. Give us a call. We’d love to talk about your options:
Call Now: 951-331-3844
Tips for When You’re Inheriting Property from Parents
As you go through the inheritance process, here are a few tips to help it run smoother.
Create a Plan
Inheriting a house isn’t an overnight process, so you’ll first want to make a plan. For example, how will you pay for upkeep, mortgages, and taxes during the entire process?
You’ll want to write up all the costs, potential challenges, and options. Then, you can begin thinking of the best solution. By creating a plan early, you can move forward faster as you have a direction to move towards. Then, you won’t feel as overwhelmed.
Manage Costs
Several costs might come with a house, including:
- Property taxes
- Utilities
- Upkeep and Repairs
- Capital Gains Tax (When You Sell it)
- Insurance
- Mortgage
- Liens and debt
For insurance, you have 30 days on average to switch over to a new plan.
However, mortgage and debt payments continue monthly. If other assets from the estate don’t pay off those debts, you’ll be responsible for them if you want to keep the inherited property.
Understand Taxes
The average California property tax rate is 0.71% of your home’s estimated value. This percentage varies between counties, so double-check your county for an exact percentage. You’ll pay this in two installments each year.
Additionally, you’re responsible for capital gains tax if you sell the house. While you don’t have to pay an estate tax in California for inherited property, you have to pay taxes on the difference between its sale price and purchase price.
In other words, when your parents bought the house initially, they paid taxes on its current value. However, over the years, the house grew in value. That added value since the original purchase is the capital gains. Therefore, you’ll pay taxes on that amount when you sell the house for a higher value.
For instance, if your parents bought the house for $400,000 and you sell it for $800,000, you would pay capital gains tax on the $400,000 increase in value. The percentage depends on your income bracket and the house’s location.
There are several ways to minimize or avoid capital gains taxes:
- Sell the house quickly before it gains any more value
- Live in the property for two or more years to reduce the capital gains you’re responsible for
- Rent the property
- Disclaim the inheritance so you’re not responsible for the property as you won’t own it
“While you don’t have to pay an Estate Tax in California for Inherited Property, you have to pay taxes on the difference between its sale price and purchase price.“
Doug & Andrea Van Soest
Common Challenges When You Inherit a House from Your Parents
While your hope is for a smooth transition of ownership, hiccups can occur. Learn some of the most common challenges you might face and their solutions.
Sharing an Inherited Property with Siblings
Your parents may have named several beneficiaries in their will or trust. If that’s your situation, you’ll need to work with the other beneficiaries when deciding what to do with the house.
There are four primary solutions to inheriting a house with siblings:
- Sell the house and split the profit
- All the beneficiaries sell their share to one beneficiary
- Rent the house and split the earnings
- Keep the house and split your time living in it
Family Doesn’t Want You to Sell
What if you want to sell the house, but your siblings don’t want you to? If the sibling(s) or other family member opposing the sale isn’t a beneficiary, they don’t have any legal hold on the property. However, you may consider selling inherited property to a family member to keep the peace.
If the family member is another beneficiary, then you won’t be able to sell the house without their permission. So, you’ll want to find a mutually beneficial solution. While settling disagreements is essential, preserving your relationship is even more important. That’s why listening is crucial to resolving disputes.
For example, if a beneficiary living in the inherited house doesn’t want to move out, you can sell your part of the property to that beneficiary. Then, they can own the entire home, and you don’t have the financial responsibility.
If the other beneficiary refuses to sell, you can file a partition as a last resort. A partition takes the case to a court where a judge will be the mediator and find a solution. The court will force the sibling to sell if no resolution is possible.
Tenant Living in Inherited House
Another common scenario is having a tenant in the inherited house. SoCal’s research has shown that 11% of inherited properties have a tenant. Additionally, 22% have a family still living in inherited property.
If the occupant is a non-relative, you must honor the current lease agreement. When the lease is up, you’re under no obligation to renew it. California law requires landlords to provide 120-day notices to tenants before selling.
If the tenant is a relative, the same rules apply. In addition, you also need to consider your relationship with the person as you want to remain on favorable terms. You can offer to sell the house to a relative or establish a new rental agreement with them.
If they don’t want to purchase the house, you’ll ultimately need to do what’s best for your situation, even if it means not renewing their lease and selling the home. SoCal Home Buyers, is a home buyer agency that will buy homes, even if there’s a current tenant.
“11% of inherited properties have a tenant. Additionally, 22% have a family still living in inherited property.”
Doug & Andrea Van Soest
Liens or Existing Mortgages on the House
Existing mortgages, liens, and debt can cause a financial burden. However, if your parents had other assets, you might be able to use those to minimize the financial strain.
If the financial burden is too much, consider working with a home buyer agency. SoCal Home Buyers are knowledgeable and sympathetic home buyers who understand the emotional and financial challenges inherited property causes. That’s why we offer fast and convenient services where you receive a quote in days.
Through SoCal, you’ll receive payment for the house faster than selling it on the market and won’t have as long to upkeep mortgages and other expenses. Additionally, we purchase houses despite existing debt or needed repairs, so you have as little responsibility as possible.
Inheriting a House that Needs Work
SoCal research showed that 87% of inherited homes need repairs. So if you fall in that demographic, you’re not alone and have options.
If the repairs are minor, consider investing in the house, so you receive a higher sale price, can rent it out, or it’s livable for yourself.
Sometimes repairs are costly, and you don’t have the funds to make the house livable or marketable. If you inherited a house that needs work, your best option might be to sell the house through a home buyer agency like SoCal. We buy houses in as-is condition, so you don’t have the financial burden of repairs.
Not sure How to Navigate Your Inheritance?
Whether you’re in need of cash or not interested in becoming a landlord, selling the property may be the best option for you. However, if you’re comfortable with the idea of being a landlord and have the means to maintain the property, renting it out can provide a stable source of passive income.
Otherwise, keeping it as your primary residence can be a viable option. Let us help you weigh the pros and cons and make an informed decision. Give us a call today, we’d be more than happy to discuss your options with you.
Call Now: 951-331-3844
What You Can Do with a House You Inherited from Your Parents
No matter your situation or challenges, you have three options: living in the house, renting the house, and selling the house.
“No matter your situation or challenges, you have three options: living in the house, renting the house, and selling the house.“
Doug & Andrea Van Soest
1. Live in the Inherited House
If you can afford the remaining mortgage, you can use the inherited home as your primary or secondary residence. Living in an inherited house allows you to hold onto your childhood memories and make new memories in your parent’s beloved house.
Before choosing this option, ask yourself these questions:
- Is there a mortgage? If so, can I afford it?
- What repairs do I have to make for it to be livable?
- Will I have to sell my current house to afford it? How will I afford both payments until I sell my primary residence?
If you currently own a home in California, SoCal can help you quickly sell it, so you don’t have two mortgages and taxes to pay. In addition, our home buyer agency will take your current house in as-is condition without long closing times and expensive marketing.
That way, you have the sale money faster, so you can fix your inherited home and make it yours sooner.
2. Rent the Inherited House
Your parent’s home may be sentimental, so you’re reluctant to part with it. That’s understandable. However, the cost of keeping it in addition to your current home will be high. Instead, consider renting it.
Renting your inherited home brings in enough income to pay upkeep, taxes, and existing mortgages. Then, when the time is right, you can sell the house or make it your own.
Before deciding if renting the house is right, ask yourself these questions:
- Do I have the time and money to be a good landlord?
- Do I live close enough to monitor the house?
- Do I have enough money to cover costs during gaps between renters?
- Will rent cover all the house’s expenses, or will I still be responsible for repairs and debt?
3. Sell an Inherited House
Selling the inherited house takes all responsibility from your plate. Then, you can decide the best way to use the profits, whether to pay off your current mortgage so you can make new memories in your house or donate the profit to your parent’s favorite charity in honor of their life.
Selling a house is a long and tedious process. The average home sits on the market for 57 days. Additionally, you have costs to make the home marketable and high real estate agent fees to cover. You don’t need that extra stress on top of the emotional strain of inheriting property.
Instead, consider working with a home buyer. SoCal Home Buyers is an empathetic home buyer that understands your unique situation. Our caring agents will walk you through the fast and straightforward process so you can sell your home within days instead of weeks, without any additional investments.
“Our caring agents will walk you through the fast and straight forward process so you can sell your home within days instead of weeks without any additional investments.”
Doug & Andrea Van Soest
Don’t Stress About Your Inheritance
You don’t have to deal with your new inheritance property alone. Our team of knowledgeable and supportive home buyer agents will give you the information you need to make an informed decision. In addition, we’ll answer any questions you have and walk you through your options. Contact us or Call Now: 951-331-3844
