Introduction
Inheriting a property can force you to make some difficult decisions, especially if the inheritance comes as a surprise. It can also feel overwhelming if you are unfamiliar with the legal side of taking over a property. If you have suddenly found yourself dealing with a mortgage or frantically googling property tax, you have come to the right place.
This guide to inheriting a property in California will tell you everything you need to know. So, whether you decide to sell, rent or move in, we have got you covered.
About the Probate
So, what exactly is probate, and what does it mean for you? Probate is the period when the executors sort out the will. They need to settle debts and make sure the deceased’s affairs are in order before any assets are given to their beneficiaries. Probate often takes months, and can take up to a year.
Because the probate process takes time, this means you won’t and can’t do much with the property right away. Luckily for you, this gives you some time to think about your options.
The first thing to do is to get in touch with the lenders (if the property has a mortgage) and inform them that you will be taking over the property in due course. Most lenders are sympathetic to the complicated probate period and offer a grace period.
Deciding whether to take possession of the property
In some cases, you may decide to reject the property, or disclaim the inheritance. This decision is usually made for one of the following reasons.
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The property is “underwater”.
If the property is “underwater”, this means there is more debt on the property than it’s worth. If you think you will lose money by accepting the inheritance, you can refuse the property.
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The estate will push push you over the estate tax threshold.
If accepting the estate will dramatically increase your taxes, it may be advisable to disclaim it.
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The hassle is too great.
If the property is run-down, inconvenient, or simple too much hassle, it may be best to let it go to the next beneficiary in line.
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A correction to the will
In some cases, it will be obvious that the will doesn’t reflect what the deceased would have wanted. If the will includes errors or was not up-to-date, you may find yourself with a property that should belong to someone else.
If you do decide to disclaim the inheritance, be aware that the next beneficiary in line will not be your decision. The property will pass to the contingent beneficiary (the person in place in case the first beneficiary dies).
About the Mortgage
If you are keeping or selling the estate, you’ll need to deal with the mortgage. In many cases, the inherited property will still have a mortgage. If the deceased had life insurance, this can often be used to clear most if not all of the debts. If not, you need to find out what is expected of you.
In the terms of the mortgage, it will outline what happens upon the death of the mortgage holder. While, payments are probably put on hold during probate, interest may still be accumulating.
Once the property is passed to you, you’ll need to find out whether it is possible to get a mortgage in your name. Alternatively, you can sell the property and pay off the mortgage with the money from the sale.
About the taxes
In the state of California, residents are not required to file state inheritance taxes, nor are they subject to estate tax. You will need to file the deceased’s tax returns, along with a federal estate tax return and a federal estate income tax return.
Selling the property
If you decide to sell the property rather than move in, here are a few things to keep in mind.
Preparing the house for sale will likely be a big job. You’ll need to go through the deceased’s belongings and make some difficult decisions about what to do with it all. This process can be both emotionally and physically draining.
You may also want to do some renovations to increase the property’s value. It’s usually best practice to get advice from a few real estate agents on what type of renovation will be best for the current market.
If you are feeling overwhelmed by the long and painstaking process of selling the house, try SoCal Home Buyers. They make selling an inherited house in California easy and hassle-free. You won’t have to worry about the listing, fees or closing costs.
Renting the property
If you decide to rent the property, you will be gaining another income stream, but you will also be signing up for all of the duties that come with being a landlord. If you go this route, be sure to do the relevant research about your legal obligations as a landlord in the state of California, including right to rent, tenancy deposit, safety checks and licensing.
Moving into the property
Your final option is to move into the property yourself. You will likely have to put the mortgage in your name, and you may have to sell your current property if you are already a homeowner. After these legalities are taken care of, you will able to move into your new home.
Conclusion
Inheriting a property can be overwhelming. With the sudden responsibility of owning a property, you will need to carefully research what is required of you legally. You’ll also need to make some decisions about what to do. These decisions aren’t always straightforward.
Inheriting a property from a family member comes with many emotions. The decision to sell your old family home isn’t easy to make. Whatever you choose to do with your property, be sure to get legal and financial advice. With a professional’s help, you will be able to see the situation more clearly, and make the best decision for you and your family in the long run.