If you are named as a beneficiary for your parents’ home in their Last Will and Testament or Trust, the transfer of the home to you upon their passing is pretty much a cut-and-dry process. However, if you and your siblings are named as beneficiaries, things can get dicey if none of you can agree as to what to do with the property. You may want to sell it. Your sister may want to keep it in the family. Your brother may want to rent it out. Despite any disagreement, inheriting your parents’ home doesn’t have to turn into a war with your siblings.
Check the Terms of the Will or Trust
The first thing you need to do is check your parents’ Last Will and Testament or Trust. What are the terms about splitting the home among you and your siblings? Is it evenly divided? Does each sibling receive a certain percentage? Are there instructions regarding selling or keeping the home?
Related: Everything You Need to Know About Your Last Will and Testament
The Executor or Trustee must follow the terms in the documents. If there are no specific instructions, it’s up to the discretion of the Executor or Trustee as to how the property is handled.
If the home was listed in a Will, it must go through probate. If the property was held in a Trust, probate is not involved and the home transfers directly to the named beneficiaries.
Financial Considerations
Inheriting a home is huge and important decisions must be carefully made. Consider the financial situations of you and your siblings. Are you and your sister/brother able to afford such an inheritance? If you want to buy out a sibling’s share of the home, do you have the financial capacity to do so? Does the home still have a mortgage? If so, how will it be paid off? Would you or your siblings assume the mortgage?
Before making any rash decisions, have a serious discussion with your siblings. The goal is to come to an agreement based on what is best for everyone.
How to Split the Inheritance of Real Property
Sell The Home & Divide the Profits
This is the easiest option. The Executor or Trustee could sell the home then evenly divide the proceeds among you and your siblings, or, split the money according to the percentages listed in the Will or Trust. Keep in mind, if there is a mortgage or any outstanding debts, those must be paid before any profits are divvied out.
Rent Out The Home & Divide the Profits
If you or your siblings aren’t ready to sell the home, renting or leasing it is a good way to keep it in the family while making some money. The rental income can then be split among you and your siblings. Just make sure you are up for the challenge of being a landlord. And, of course, it is your responsibility to maintain the property.
Buy Out Your Sibling's Share
You can buy out your sibling's share if they are willing to sell. Have the property appraised to determine the current market value.
Create a Private Agreement
You may be able to work out a private arrangement of what to do with the home. Perhaps your brother or sister wants to buy out your share but can’t afford it. You could set up a payment schedule that is affordable to them. Make sure the agreement is in writing and spells out specifics such as the interest rate, monthly payments due, and the amount of time to pay it off. A written agreement prevents problems down the road. A deed of trust – a type of secured real estate transaction – should also be filed as added protection.
Force a Sale
One of your siblings may dig in their heels about wanting to sell the home, but you want to keep it. That sibling could force the sale of the home (yes, they have the legal right to do that). This scenario involves the courts and can be costly, time consuming, and even result in a falling out among your siblings. Negotiating some type of an agreement or a buyout would be in the best interest of everyone.
Partition Action
When all else fails, legal action may be the only resolution. If you and your siblings cannot agree on what to do with the inherited home, or if one sibling refuses to sell and the others want to sell, then a court will have to get involved. What is known as a partition lawsuit would be filed in probate court. A judge could order the property to be sold and the proceeds split among the siblings. In this case, if one sibling wanted to keep the home, they could buy it through the real estate sale. The judge also has the option to divide the property among the siblings.
Share Ownership
If everyone has decided to keep the home, you can set up tenancy ownership. There are two types – joint tenancy and tenancy-in-common. Joint tenancy gives all co-owners equal share of interest. If one co-owner dies, that share passes to the surviving co-owners. All co-owners must agree to sell any shares of the property. Tenancy-in-common allows the property to be divided equally or unequally and the individual’s share can be sold without consent of the other co-owners. Upon the passing of a co-owner, their share transfers to their heirs.
Dealing with Inheritance Tax
You and your siblings could be subjected to an inheritance tax if you live in one of the six states that have it. Surviving children are exempt in most states or are taxed at a low rate.
Related: Tax Implications of Estate Planning
Inheriting a Co-Owned Home
Let’s say your parents left you and your brothers and sisters a vacation home they co-owned with someone or owned in a Trust. That third party’s share would have to be bought out, or, they would have to buy out your interest. If the co-owner refuses to sell, you and your siblings could file a partition action. However, you can only file it if the Executor or Trustee has transferred the property title to you and your siblings. If you do not have the title, you legally cannot file a partition.
A Will or Trust is a Must
If you keep your inherited home or share ownership of it, you still need to protect it, yourself, and your family by creating a Will or Trust. Avoid heartache and legal hassles by creating a complete estate plan with Gentreo. We’ll walk you through the process and stay with you as life changes.
