It’s not unusual for children to inherit property when a parent dies, but what happens when your new real estate is more than you can handle? If you’ve suddenly inherited a house but you aren’t willing or able to hang on to it, the simple solution is to sell it off, right?
It might be if you’re the sole owner, but if you share an inherited property with your siblings, things have just become a bit more complicated.
Parents can and do name multiple children as inheritors of their property; even when a person dies without a will, many children may still find themselves inheriting property and other assets. And while this may seem like a great boon in some ways, it also has the potential to cause some problems such as:
- Sudden financial obligations
- Potential tax liabilities on a sale
- Financial or personal stress from attempting to manage the property
- Confusion over what you can and should do with the property
- Familial rifts, anger, and resentment
- Court battles (and associated costs) if the shared owners can’t come to an agreement
- A forced sale, which may result in the house going to auction or selling for a lower price than it is worth
If you are inheriting a house in conjunction with your siblings, you may find yourself experiencing one or more of these issues. One of the best ways to deal with them is collecting pertinent knowledge that will help you come to the best decisions about your property. Let’s begin by understanding what you can do with inherited property.
What You Can Do with Inherited Property
If you have inherited property from your deceased parents, there are three things you can do with it. Each presents its own benefits and drawbacks.
Move into the home
If you or one of your siblings decides that they would like to move into the family home as a primary residence, you may want to consider the buyout option. In this scenario, the sibling who wants to own the home will essentially buy their siblings’ shares of the house. Be warned that this may come with additional costs such as mortgage payments, maintenance expenses, fees, and more, as well as yearly property taxes.
Rent out the property
Perhaps you and your siblings already have homes but aren’t interested in selling your family property right now. If this is the case, you may want to consider renting the house or property. Be aware that this option may require a lot of work and financial investment to get the property renter-ready and to provide maintenance and property management. There are also certain risks associated with rental properties that you will want to be aware of, such as destructive or malicious tenants, tenant gaps, and more. You may find that the rent money you pocket every month, when split between all the owners of the property, is not worth it.
Sell the property
Selling and splitting the profits is one of the most popular ways to take care of inherited property. Keep in mind that you may still have to cover some costs associated with the sale, as well as potential capital gains tax once the sale is complete. If you’re looking to save money on fees, commissions, and repairs, utilizing professional real estate buying services such as House Buyers LI will not only cut back on costs but will also help you close the deal quickly.
Can Siblings Force the Sale of Inherited Property?
The answer is yes, it is possible for one heir to force the sale of a shared inherited property by filing a partition with the appropriate court. It’s important to note that this is a last-option resort, as forcing a sale can be expensive, time-consuming, and may not turn out exactly the way you want it to.
Before forcing a sale, it’s important to try other measures.
Four Steps to Selling an Inherited Property
If you are inheriting a house or property and are not interested in keeping it, there are four main steps to the selling process.
Step 1: Probate
As a beneficiary, before you can receive your inheritance, you’ll have to experience the legal process of probate. This is the process during which a will (if there is one) is filed, creditors who have a claim against the decedent come forward, all outstanding debts are settled, and interested parties or beneficiaries are notified that they have been named to inherit.
You should receive a probate notice from the executor of the will after it has been validated. Once assets have been properly appraised, they will be distributed in accordance with the will or intestacy laws.
Let’s look at an example.
Your father passes away, leaving his property to you, your brother, and your sister. The three of you will receive a probate notice informing you of your standing in the will. Because the inherited property is valued at $300,000 and is to be divided equally, each of you will own a third of it, or $100,000 worth of the property.
Step 2: Property Appraisal
After assets have been distributed and you and your siblings inherit property, do take the time to get a property appraisal. This might mean the difference between an easy and unified sale or a long court battle.
During the property appraisal, your appraiser will find out approximately how much the inherited property is worth by comparing it to similar properties and taking note of its present condition.
Once you have a dollar amount, it will be easier to talk to your siblings about selling the property because you will all know how much it is worth and what you’re likely to receive for it. Providing solid numbers and data can be a powerful negotiating tool for siblings who are on the fence about selling, as they are more likely to be swayed if they know what they stand to gain in the event of a sale.
Step 3: Discuss Property Options
If circumstances allow, one of the most important things you can do is open up a discussion with your siblings concerning the future of the property. A calm discussion can mean the difference between peacefully reaching a conclusion that everyone is happy with or a long and expensive court procedure.
During these discussions, be sure to talk about the benefits and risks associated with every option available to you (i.e., selling, renting, etc.), as well as your reasons for being in favor of a certain option.
You may want to consider organizing a buyout, as this could greatly facilitate the selling process. To do this, you can either offer to sell your share of the inherited property or buy your siblings’ shares so that you are the sole owner.
Let’s go back to our earlier example – if your brother and sister would rather have immediate cash than real estate, but you want to fix the property up and sell it later. Because the property is valued at $300,000 and split evenly three ways, you would pay for the two parts that you don’t already own, amounting to $100,000 to each of your siblings. Upon doing this, you would be the sole owner of the property. You would then be free to sell the property at your leisure.
If a buyout will not work for your situation, be sure to discuss other options such as promissory notes, selling and splitting the profits, or renting the home and splitting the profits.
Step 4: Partition Action
What if one or both of your siblings refuses to cooperate? In these cases, after you’ve exhausted all other options, you may need to resort to filing a partition action.
A partition lawsuit is essentially a legal order that forces the sale of an inherited property, even if the owners haven’t all agreed to sell. Once a partition lawsuit has been filed, it cannot be stopped, so it’s important to be sure that you’ve exhausted all other options.
After considering the matter, the court will decide on one of three outcomes:
- One owner needs to buy out the others.
- The property must be physically divided (this cannot happen with buildings but may be feasible with rural land or acreage).
- The property should be sold, and the profits split up among the owners.
Using our earlier example, let’s say that you and your brother have both agreed to sell the property, but your sister wants to keep it as a vacation home. Unfortunately, she is not able to afford a buyout and not willing to consider any other option. You and your brother decide to file a partition action to receive your fair share of the inheritance.
The Risks of a Partition Action
Partition action gets the job done, but it’s not without its risks. Here are the risks to be aware of before you file a partition action to force the sale of your inherited property.
You cannot stop a partition action. Once a partition action has been filed, there is no way to stop it from going before a court. Even if your siblings change their minds later on and decide they want to sell, it might be too late. Of course, it is possible to appeal a court’s decision, but this will take time and money.
The person filing has to front the bill. Any legal fees and costs fall on the shoulders of the person who has filed the partition action, which means that expenses could end up eating into your potential profits.
The court may reach a decision you don’t agree with. You may file a partition action in hopes of reaching a buyout agreement, but if this is not possible, the court will still resolve the case – albeit in a way you might not like, such as putting the inherited property up for auction.
Going to court can be costly. Deciding things in court is not only a lengthy process, but it is also an expensive one – thanks to attorney fees.
It can have familial repercussions. Taking family members to court can be an emotional time and may result in anger, guilt, and other negative emotions and feelings.
When to Force a Sale
Considering the risks involved, it can be difficult to know when you’ve reached the appropriate time to file a partition action to force the sale of inherited property. Generally, forcing a sale should be saved until you’ve exhausted all other options.
You will know that it’s time to force a sale when you have attempted to discuss all your options with your siblings and still haven’t agreed on a solution and aren’t able to keep the property, either for financial or personal reasons. Remember, you are not obligated to keep a property that you don’t want or can’t afford.
The Right Buyer Makes Selling Inherited Property Easier
If you are inheriting a property with your siblings, it’s important to know what options are available to you so that you can make the best choices. If you’re interested in selling your inherited property, clear and open communication with the other owners is not just recommended – it’s a necessity.
Finding the right buyer for your inherited property often requires countless hours of research or a costly agent with all kinds of fees and commissions, but with our team at House Buyers LI, selling has never been easier.
We offer fair, fast, and timely cash purchases for homes throughout Long Island. When you work with us, there are no mortgage approvals, hidden fees, or closing costs. After we take a tour through the home, we can give you an instant offer and close in just a few days so that you can have your cash when you need it. We know that the prospect of a fast, easy sale can make it much easier to reach an agreement about your shared property.
Contact us today for a free, no-obligation quote.
Inherited Property FAQs
[sc_fs_multi_faq headline-0=”h2″ question-0=”What is an inherited property?” answer-0=”Inheritance is an asset that is bequeathed to a beneficiary after someone has died. Therefore, an inherited property is any property, whether land or building, that is passed down to an heir once the owner has died.” image-0=”” headline-1=”h2″ question-1=”What is the holding period of inherited property?” answer-1=”A holding period is the length of time that an investment is held by an investor and is used to determine the taxes associated with the investment; a holding period begins on the day you acquire the investment. Holding periods may be long-term (over a year) or short-term (under a year), though inherited property is always considered to be long-term. This means that even if you’ve only owned the inherited property for one day, it is still a long-term asset and you can enjoy the benefits of lower tax rates.” image-1=”” headline-2=”h2″ question-2=”What happens when you inherit a home?” answer-2=”Inheriting property does not automatically trigger tax liability, but you should be prepared for expenses such as property taxes, maintenance and repair, and capital gains taxes if you choose to sell. If the home has a mortgage, you may have to assume the payments or pay it off in full.” image-2=”” headline-3=”h2″ question-3=”Is inherited property considered investment property?” answer-3=”Yes, the IRS considers inherited property to be an investment property unless it is your primary residence. An investment property is any property that offers a return on the investment through rental income, resale, or both. Even if your inherited property has been sitting empty and gathering dust, if it has not been used for a primary residence, it is considered a “second home” and, therefore, an investment property.” image-3=”” count=”4″ html=”true” css_class=””]