You and your siblings just inherited the family home. Now what? Trade Mart founder, Walter Williams had one answer. The East Carolina University “East” magazine reported back in 2007, that Williams grew up on County Home Road near Winterville, NC. “He inherited the property after his parents passed, and he’s now painstakingly remodeling the two houses along with his mother’s wash house, the smoke house, chicken house, corn and potato barns and two tobacco barns.”
That was Mr. William’s decision. Yours may be completely different. The important first step is:
- Take a breath. Nothing has to be done immediately. You and siblings will have a lot of different emotions and memories about the home. Think about what the home means to each of you. Some may want to sell and split the proceeds immediately. Others may think about living in the house again. Everyone will want to know what the house is worth.
- Seek the advice of professionals. Real estate investors experienced in selling houses are a must. The professional investor can walk through the house, see if work needs to be done to sell it and will give you a feel for the neighborhood and the house’s worth. The other professional you could seek is an attorney experienced in probate and real estate. You need to find out what is owed on the house, what is the cost basis, any liens outstanding. These professionals will answer any questions you have and will help you make selling decisions.
- Clean the house. As you clean, you can divvy up the folks personal belongings and arrange to sell the rest in a garage sale or estate sale. If you plan to sell to the public, the house will present a better face if it is clean and empty or staged. An alternative to cleaning the house, which many families don’t want to do, is again the real estate investor. With professional investors you have the option of not having to clean out the house and quick settlements to keep maintenance costs from piling up.
- Decide to sell or rent after the house is clean. There is another choice. If the house is underwater, you don’t have to accept the inheritance.
- People always ask if you have taxes due on the inheritance. If there are taxes due, the estate of the deceased pays the taxes on the value of the estate. Maryland recently raised the estate tax exemption. Maryland will gradually increase the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption which is projected to be $5.9 million, up from $5.34 million today (it’s indexed for inflation).
- The other tax imposed by Maryland is the 10% Inheritance tax. Spouses, children (and their spouses and children), parents, and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10%.
- Understand in this process, nothing can tear a family apart more than money. Be wary of arguments about renting vs selling; what price to sell the house; who gets what possessions; what is the proper sharing arrangement; what professionals to use; and how any comingled money is to be invested.
- Once distributions have been made, preserve your capital. Old money has a saying, “Never touch the principal.” They live off the income. Capital can be hard to accumulate. Even if you save 10% of your income each year, it takes considerable skill to save and invest to accumulate a large savings account. So treat it kindly. Would your parents, who passed on leaving you their wealth, feel good about the way you spend your inheritance? Consider hiring a professional investor.