Receiving an inheritance is usually a sentimental event. The gift could bring you joy. But you’re also likely to struggle with grieving for the person who left it to you.
Although this may be an emotionally charged time in your life, you need to take charge. Inheriting a house is as much a responsibility as buying and owning one on your own. You’ll find yourself faced with several decisions you need to make.
The circumstances of the inheritance will vary. For example, if you’re the transfer on death beneficiary, it won’t be subject to probate. But if it’s left to you in a will, it will be.
The best way to make sure you take all the necessary steps with this inheritance is to talk to an attorney. In the meantime, if you want to know what might come next, read up on these four tips.
1. Keep It Covered
Regardless of whether you plan to keep the house, sell it, or haven’t yet decided, make sure it’s insured. Homeowners insurance doesn’t come with the inheritance. You’ll need to purchase a policy in your name.
If the house is among the assets to be probated, you won’t be able to do this until the estate is settled. However, you still need to make certain it’s insured in the meantime. The executor should be able to provide you with the current policy so you can contact the insurance company. You’ll want to notify them of the death and check into the status of the policy and premium payments.
The existing policy is likely to be in force for about 30 days before the next premium payment is due. However, you’ll probably need to purchase a short-term policy until probate is completed. These can be pricey, but it’s worth the cost to keep the house covered.
When you’re able to buy homeowners insurance in your name, what type of policy will depend on your plans. Coverage will be different if you plan to sell it or rent it out rather than use it as your primary residence. Just make sure you keep this asset covered until it’s truly yours.
2. Lock It Down
Once you know you’ve inherited the house, make sure you secure it. This is one of the executor’s responsibilities until the estate is settled, but you can offer to help. And if the house isn’t subject to probate, it will be your responsibility right away.
You should inspect the house to find out what shape it’s in. If it’s going to need repairs and other maintenance, you’ll want a heads up. Also, assess the contents of the property to make plans for any items that haven’t been left to other beneficiaries.
Emptying the fridge of perishable items and disposing of trash should be done right away. Making sure windows and doors are locked and mail is being taken care of will discourage break-ins. Put timers on lights or install a doorbell camera to make it appear someone is living there until it’s inhabited.
Finally, depending on the location of the house, turning on heating or cooling systems may be crucial. Just make sure the house is fully secured. You’ll want it to remain intact until you or someone else moves in or you sell it.
3. Make Sure the Bills Are Paid
Again, this is the responsibility of the executor if the house is part of the probate process. But there’s no harm in checking with that person to make sure the bills are being paid. It might keep you from being forced to clean up a mess once the house is yours.
If there’s still a mortgage on it, make sure payments continue to be made in a timely manner. You don’t want a lender foreclosing on your inheritance. With or without a mortgage, make sure the house remains insured as referred to in tip number one.
Utility bills are also critical payments. Transfer those bills to your name as soon as possible and keep them paid up. Avoid dealing with a freezer after the electricity has been shut off or frozen water pipes when the gas is cut.
You’ll also need to check on the status of property tax payments to ensure no lien exists. And if there are utilities you don’t need to remain on, such as cable or internet service, have them discontinued. The house may be yours at no charge, but the bills still need to be paid.
4. Know Your Tax Obligations
Whether you owe taxes on the inherited house, how much, and what kind depend on where it’s located. But no location will allow you to use ignorance as a defense if you fail to pay what you owe. Make sure you find out what obligations you have and honor them.
Local property taxes, mentioned previously, will almost always apply. Check with the assessor’s office about those. The person who left you the house may have been in arrears or may have already paid them for the year. Either way, you’ll want payments to be current.
You may or may not owe inheritance tax to the state. The state where the house is located, not where you may live, determines whether you owe any. Federal estate tax may be in play if the size of the decedent’s estate, not necessarily the value of the house, is large enough.
If you decide to sell the house you’ve inherited, you’ll pay a capital gains tax based on the sales price. Just because the house is a gift doesn’t mean it doesn’t come with a few strings attached. A conversation about tax obligations with a certified public accountant in the applicable state is a good place to begin.
Some Strings Attached
A house can be a wonderful inheritance. But it’s up to you to find out what strings may be attached to this gift. Do your homework, take care of business, and enjoy the peace of mind that comes with knowing everything is taken care of.