If you’ve suddenly inherited a house, you may not be prepared for the questions and issues that can arise. And if you make the wrong decisions, you will likely encounter a lot of financial, emotional, and family problems before long.
When you are forewarned, you are forearmed, so here’s some of what can go wrong when you inherit a house in NC and what you can do to make the best of the situation you’ve been “gifted”.
What Can Go Wrong When You Inherit a House in Greenville, NC
The Tax Man Comes Calling
There’s a very high tax exemption (in the millions), and the estate tax was even temporarily suspended on 2010. That’s why a majority of people aren’t going to need to worry about it.
But also suspended in 2010 was the step-up provision…
When it comes to the government there’s always a catch…
So in considering what can go wrong when you inherit a house in NC and when you intend to sell it, you need to consider the stepped-up capital gains situation.
The step-up provides that you pay capital gains taxes only on the gains above the fair market value at the date of the decedent’s death.
It doesn’t have anything to do with the price the decedent initially paid for the house – unless the step-up falls in one of the years when it was changed.
In that case, you may owe a lot more in taxes than you bargained for, and that’s never a good situation to be in.
The Mortgage May Be Bigger than You Thought
When you ask someone, “how much do you owe on your house” it’s standard practice for them to dodge the questions by saying something like, “I only have 5 years left!” or “I’ll have it paid off by the time I retire!”
This can be very misleading, especially to heirs.
Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off.
Nowadays, it’s common for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds.
We see reverse mortgages becoming a bigger part of the Baby Boomer’s lives over the next decade, for that very reason…
It’s important for you to know that a reverse mortgage cannot be assumed by heirs.
And in the case of a standard mortgage, you can assume the mortgage only if you live in the house yourself.
Most of them time, though, banks will have it written in the Deed of Trust that the loan CANNOT be assumed by any party.
It must be sold.
So if you intend to rent the house, be prepared to refinance it in your own name.
There May Be A Lot Of Repairs/Upgrades Needed
With respect to what can go wrong when you inherit a house in NC, this problem may be the most costly.
When someone inherits a house, it’s normally from an elderly parent or a very close relative after they’ve passed.
On top of not having the physical strength to maintain the property or do any upgrades, millions of elderly people don’t have the money to do anything at all!
This is a sad fact about aging in the current economy…
And if they do have the money to do said repairs, they may just choose not to do them since they know they’re not going to be living in the house for many more years.
They’d prefer to just relax and enjoy the time they have left.
If you plan to live in an inherited house, this may not be a huge concern.
But if you intend to rent it or sell it, you’ll have to make repairs to make it presentable and upgrades to bring it up to code and meet other legal and insurance requirements.
Installing a new HVAC system or re-wiring the house will involve a big chunk of money.
There May Be Challenges With Other Heirs
But what if you’re not the only heir?
That can be a problem…
Consider what would happen if you and your siblings inherited the house jointly…
If you want to sell it, your sister may want to rent it out for cash flow, and your brother may want to live in it himself.
You can see what a powder keg waiting for a spark this is…
This is where fights tend to break out between siblings and the property sits and decays…
There is a property in our area that has 9 heirs that are in this battle.
They have the best of intentions and want to rent the property out, but now it’s overgrown and you can’t see the house from the road.
They said they’re going to bush hog the property and fix up the house so it can be rented.. but that was two years ago…
In most states, joint heirs of a home are considered tenants in common, and one heir can force a sale if it comes to that.
The process, however, is expensive, and the emotional and familial consequences are likely to be highly unpleasant.
So what can go wrong when you inherit a house in Greenville, NC?
Quite a lot, actually, if you’re not up to speed on tax laws, mortgages, and upgrade issues.
It is best to contact a qualified professional to help head off these issue quickly.