Selling an Inherited Property in California

Inheriting a property often presents both emotional and financial challenges. You might face questions like whether the property needs expensive upgrades and repairs, what the tax implications are, and if there’s a will or the necessity to go through the probate process. Despite these hurdles, inherited properties offer significant opportunities for real estate investors and buyers looking for discounted properties they can personalize. But what is involved in selling an inherited property? Are there specific steps required for this type of sale? This article will guide you through the process of selling an inherited property with the goal of making a profit.

How To Sell An Inherited Property in California

You’ve inherited a property and might be wondering what to do next. In most states, inherited properties must undergo the probate process, where courts establish the legal ownership. Probate is a legal procedure in which the court officially transfers the estate’s assets to the beneficiaries or heirs. The duration of this process can vary; it might be swift if there is a clear will, or it could be prolonged if the will is contested or absent.

Determine the Executor

For inherited properties with a will, establishing the executor of the estate should be straightforward. One of the most important aspects of a will is establishing an executor that is able to carry out the deceased’s wishes through the process of probate.  Any assets listed in a will can’t be sold until the will is validated by the Court but, once approved, the executor of the will is allowed to act on the wishes of the deceased. But if the will is contested or there is no will, the process might take longer as the Court gets involved. 

The probate court will appoint someone not associated with the family as an administrator to the estate. These administrators play a similar role as an executor; they are responsible for carrying out the wishes of the deceased as stated in the will, as well as paying off any of the estate’s debts and distributing any assets. They may also determine if any real estate assets will need to be sold to pay off the estate’s debts, including back taxes, mortgages, etc.

Working with Lawyers and Real Estate Agents

Probate is not a simple process which is why you’ll want an experienced lawyer to help you navigate the potential pitfalls of selling an inherited home. But once you have the probate court’s okay to move forward with the sale of the property, working with a real estate agent that has dealt with inherited homes before will be your next smart step. An experienced agent with probate experience will understand the nuances and regulations for this type of sale. They can help you find the right buyer to help you get top dollar for the inherited property. They also will be a helpful guide to let you know what is worth spending time and money to fix up and upgrade, and what is a waste of your time. Listening to their advice may be the difference between selling a property quickly and for a profit, or being stuck with a house that sits on the market for too long and sells for below market value.

Resolve Any Debts

When you hear the word “inheritance,” what comes to mind? Do you picture a glamorous mansion bequeathed by a mysterious great-aunt, nestled in the woods and worth a fortune? Or do you face the reality that inheriting a property often involves dealing with substantial challenges?

The truth is, inherited properties frequently come with more than just sentimental value. They may carry liens against the title, years of back taxes, and a mortgage that can severely impact the potential profit from a sale. Sadly, inheriting a loved one’s estate often means inheriting their debts as well—whether that’s unpaid taxes, outstanding mortgages, or maxed-out credit cards. These financial obligations must be resolved before you can see any benefit from the estate.

While a property might seem like a significant asset, it can quickly become a financial burden if it’s not in good condition or if it comes with considerable debt. An experienced estate advisor can be invaluable in helping you understand and manage these complexities, ensuring you make informed decisions about your inheritance.

Clean & Restore the Home

Once you’ve secured ownership of the property, your next decision is whether to live in it, rent it out, or sell it. Often, when a loved one passes away, they leave behind a property that may not be in the best condition. Whether it’s a house that hasn’t been maintained in years and requires significant cleaning and repairs, or one that hasn’t had any updates and needs a complete renovation to be market-ready, this aspect of inheritance is frequently overlooked.

Do all heirs have to agree to sell the property?

Heirs are not required to agree to sell an inherited house or property if ownership has already been established through a will or by the probate court. However, if ownership has not been clearly established, such as in cases where there is no will or a court-appointed administrator is involved, all heirs must consent to the sale. This requirement also applies to properties auctioned by the court to settle the estate’s debts. If a buyer purchases a house at auction and one or more heirs oppose the sale, the transaction must be put on hold until the disagreement is resolved and a settlement is reached.

How to Settle a Disagreement

There are several options for resolving disagreements among heirs over an estate, but the first step is ensuring that the deceased appointed an executor. An executor is responsible for ensuring that the deceased’s wishes, as outlined in the will, are followed, which can help prevent disputes over asset distribution. If there is no executor and the will is being contested, hiring a mediator may be the next step. A neutral third party can help resolve differences more affordably and efficiently than a legal battle in probate court.

Best Practices

What if the executor themselves become the source of conflict? Tensions can escalate when a family member is appointed as the executor or trustee of a will, which may lead to disputes with other relatives. If this situation arises, the appointed executor has the option to step down and appoint an independent fiduciary, like an estate-planning attorney, to manage the will. Bringing in a neutral party can help avoid conflicts and give everyone the opportunity to process their emotions, thus preserving family relationships and preventing long-term rifts.

How is inherited property taxed when sold?

In 2020, state and local governments in the United States collected over $5.3 billion in revenue from estate and inheritance taxes. That’s a significant amount of tax revenue! However, since laws and regulations vary from state to state, it’s essential to conduct thorough research and consult a lawyer experienced in taxes and estate planning. Whether you’re dealing with an unexpected inheritance or writing your own will, professional guidance can help you navigate the complexities of estate taxes and ensure your plans are executed smoothly.

State Tax Laws

Each state has different laws regarding inheritances. In the case of the sale of an inherited property, states may take an estate tax, an inheritance tax, as well as a capital gains tax on your inheritance. Currently, twelve states have an estate tax, 5 have an inheritance tax, and one has both an estate and inheritance tax.

Capital Gains Tax on Inherited Property

What is the capital gains tax and which states require it? The capital gains tax is paid on the appreciation of any assets that an heir inherits through an estate but it is only levied once the asset is sold for a profit, not when you inherit. This tax is then paid on the difference between the sale price and the purchase price of the property. Most states require this tax paid on an inherited property, but there may be exemptions for individuals selling a property for less than a certain amount. An example is Washington State, where the capital gains tax is not levied on homes and/or properties sold for less than $250,000. There may also be other legal ways to get around or reduce the capital gains tax in your state, including reinvesting the money in another property. Consult with a tax lawyer knowledgeable of the laws in the area you will be selling before proceeding with the sale of your property.

Estate Taxes

An estate tax is a tax paid directly out of the estate to the state before anyone is able to inherit it. Worried that you might get a huge hit taken from the estate? Don’t worry! The estate tax has a minimum threshold which in 2023 was $12.92 million for individuals. This means that the government is not able to charge you an estate tax unless your total taxable estate is worth $12,920,001. The remainder is passed on estate tax-free. Despite having such a high threshold, each year more states repeal their estate tax laws, losing out on millions of dollars of revenue.

Inheritance Taxes

Only six states have an inheritance tax, meaning that it is likely that you are in the lucky majority that won’t have to deal with this. But if you live in one of those six states – Maryland, Nebraska, Kentucky, New Jersey, Pennsylvania, and Iowa – you as a beneficiary/Heir to an estate will be required to pay taxes on your inherited assets and properties. But don’t worry – even if you live in a state that has an inheritance tax, you won’t have to pay a dime if the deceased lived in one of the 44 states that does not have this tax.

Documents required to sell an inherited property

To demonstrate legal ownership and list a property for sale, you will need a copy of the court-issued documents that grant you the legal authority to act as the executor or administrator of the estate. These documents confirm your ability to manage the inherited property. Once a buyer is found and you are ready to close, you will need the deed, title insurance, and other relevant legal records to verify the legal ownership of the inherited property.

Research any additional documents that may be required to sell an inherited property in your jurisdiction. Some areas might require extra property-related documents, such as previous surveys, inspections, or other paperwork related to the property’s condition or history.

Is there an easier way to sell?

Yes, there is! We Buy Homes All Over California is a direct house-buying company that has built its reputation on buying inherited houses for cash with less stress and fewer fees. Contact us today to receive a competitive cash offer for your inherited house, condo, or property. We buy homes in any condition and can assist with the complex process of selling a house in probate. Let us make your home-selling experience straightforward and stress-free, so you can move on with your life.

Even if the house suffered major damage in the last storm or has been neglected for years and requires extensive upgrades to be “market ready,” once you accept our fair cash offer, our team of experts will handle all those expensive repairs. We make selling an inherited house easy.