INHERITING REAL ESTATE
Do you remember playing the board game called the Game of Life®? Every so often, somebody would inherit a mansion and it would be a game changer, typically in favor of the person inheriting the property. In the real game of life, inheriting real estate is not as simple as it seems. Here are some of the things to consider:
Clearing Title:If you inherit real property the first question you should ask is “How do you get clear title to the property?” Clear title, or having the property be determined to vest in the new owner’s in “fee simple,” is the key to any future sale, rental or transfer of the property. To ensure clear title, the property must be legally transferred to the heir.
If the decedent (the person who died) held the house in trust, the trustee transfers the property by executing a trustee’s deed transferring the property to the beneficiary or beneficiaries. If there was no trust, clearing title may require probate. In order to evaluate this, you will need to determine if the decedent died with a will (testate) or without a valid will (intestate) and if there are potential claimants against the estate. In addition, you will need to determine if you would like to transfer the house to a non-beneficiary in a two year period of time after the death of the decedent. If this is the case, probate is generally the only answer.
The Mortgage Company and Creditors: Before you agree to the transfer, ask the next question: “Is this property worth anything?” Death does not wipe out most debts connected to real property or with a decedent’s estate. To determine if the property is worth anything, the value of the asset is decreased by the liens against the property and possibly by the claims against the estate of the decedent. In addition, the value is also decreased by the costs of transfer including, if needed the cost to probate the asset in order to validly transfer the asset.
Disclaiming the Asset: Before agreeing to take title, you should ask the third question, “Do I want to disclaim the property?” If the value of the asset is negative due to liens, mortgages or other debts, or if the asset is tainted due to environmental problems or otherwise, you may be better off not inheriting the real property. In addition, if you disclaim, the property may pass directly to one or more of your children. If disclaimer is the answer, it is important to formally disclaim the asset. Failing to do so, may result in your being on title to the asset. If the problem involved an environmental clean-up, you may share in the financial responsibility and cost of clean-up or if you pass it to your children, gift tax.
Groups Inheriting:Assuming you are ready to take title, you should ask “Who are the other heirs?” When a group of individuals inherits real property, the potential for disaster exists. Anyone who has watched kids try to agree to a T.V. show knows group decision making is no fun! It is much easier if the parties inherit through a trust. The trust can then name a single person as in charge of decision making and asset distributions. The decisions that the inheriting group will face include whether and when to sell, lease or otherwise transfer the real property and at what cost with what repairs. In addition, the one or more beneficiaries may seek to buy out the remaining beneficiaries. Until the property is sold, transferred or rented out, the heirs need to agree about how costs will be shared. Real estate taxes, upkeep and utilities will not wait! If the decedent did not use a trust, or if responsibility for decisions are not clearly delineated, try to hold a meeting of the heirs to establish ground rules. Consider using an attorney as a mediator to keep the process fair.
If in your Game of Life® you inherit real property, before you start packing for the move-in or prepping for a sale, take the time to ask a few questions. You may be surprised by the answers. If you want your children to inherit equally, make sure you take the steps to make the transfer a smooth ride. Winning at the Game of Life® takes a little planning!
Should you have any questions about inheriting Real Estate or any other law and or would like to schedule a no-charge consultation with one of our attorneys, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.