What do you do when you’ve inherited a house? How do you sell a home from a loved one’s estate? What will happen with your home after you pass away? These are common questions we get in this industry. To help answer them, we sat down with Steven Zelinger, an attorney that specializes in estate planning and probate.
WILL YOU BE PREPARED?
When the time comes to manage your parent's assets after they’ve passed on, most of us are in the dark. “Imagine you walk into a completely dark room” Steven shares “It would be helpful to have night vision goggles or glow-in-the-dark stickers to help you navigate your way. This is what your lawyer and proper estate planning can do for your family when it comes to managing assets when you pass away”.
To determine where those “stickers” will go, parents and adult children should begin making a list of the parent's assets, debts, and other important details. Technically, no one other than the account owner (such as the parent) can use passwords and have online access to accounts. Therefore organization is key- outline all your assets (car, house etc) financial information (bank accounts, 401k etc), and any major debts (credit cards, mortgage, loans etc). That way the children will know who to call when the time comes.
The next step is to get in touch with an experienced estate planning and probate administration attorney like Steven. “Many people come to us and ask, what is better, a Will or a Trust? While doing some level of estate planning is always advisable, the exact contours of that depend on your situation and goals. In the big picture, remember you’ve worked so hard to create and build your assets, why would you not protect that?” The legal process of paying debts and dividing the decedent's assets to inheritors is called probate. Having a valid will can make probate easier and less expensive. Think of estate planning as an investment that will be worth the return for your loved ones. An estate planning attorney will also help establish a health care power of attorney, a general power of attorney as part of your overall plan which may include a will and/or trust.
TO WILL OR NOT TO WILL
Often people think when they die their assets will automatically go to their surviving spouse, with or without a will. In PA, however, assets are allocated to both the surviving spouse and the children if there are any. A will is a tool that overwrites the law and divides assets to chosen loved ones. For most assets, think real estate, bank accounts, brokerage accounts, the outcome will also depend on how the title of the property is held. If a married couple owns the property together (Tenants by Entirety) and one spouse dies, the surviving spouse will continue to own the property 100%. However, if the deceased spouse owns the property in just their name the will or intestacy will apply.
As far as when to get a will, any time is a good time but certainly it’s advised once you are married, have children, or have a large asset, like a home because more people are relying on you. Steve also notes “Real estate is essentially an asset no different than any other because it is something of value. In other ways, it’s completely unique, you can’t simply cut it in half. A property also comes with its own set of complications.” At the top of that list are, you guessed it, taxes!
COSTS AND TAXES
The good news is most of us won’t have to owe federal estate taxes on an inherited property unless it’s over about 13MM in value for a single person and about $26MM for a married couple. However, inheritance tax and capital gains taxes are a slightly different matter.
If you’ve inherited a property from a PA resident, inheritance tax is due within nine months of the descendant's death. You’ll be subject to this tax no matter if you decide to sell the home, move in, or use it as an investment property. Capital gains tax, on the other hand, will be calculated based on the timing of when you eventually sell the property. If it’s immediate, there will be no capital gains tax. This is due to what is called a “step-up basis”, however, if you wait a few years, you’ll have to pay. We suggest you read our Capital Gains blog or better yet, give Steven a call to help you understand your options and timing.
In addition to the tax bill, you’ll also need cash to cover costs generated by probate as well as legal fees and executor’s commissions. If the deceased had savings and other assets, you can utilize those to generate the cash for the expenses incurred. Whatever remains is distributed as outlined in the will or trust. If there are no savings or additional assets, you’ll need to come up with the money to pay cover. Steven shares that his clients “might take out a loan or finance the house to help pay the fees”. With all the different possibilities, it’s exactly why you want a trusted source helping to guide you through the process.
THE HARDEST PART
It’s never easy to be on the receiving end of inheriting an estate as it comes with the loss of a loved one. Taking steps to prepare a will can at least make the probate process as smooth as possible. Our team has been through estate sales big and small, involving one seller to six sellers, with wills and without. While they’ve all been unique, the process is always a sensitive one.
If you’re an inheritor, deciding what to do with an estate may seem overwhelming. We work with a lot of clients who decide to move forward with becoming a landlord, move into the home, or make the difficult decision to sell the property. Our agents will navigate you through your options. Whether it’s helping you lease or sell the property, or offering a recommendation for an appraiser, contractor, or probate lawyer, the Philly Home Girls team is here to support you.
With its current moniker of Philadelphia’s “Little Italy”, Bella Vista prides itself on celebrating the best of Italian history and culture. In recent years, the neighborhood has become even more diverse, with growing Vietnamese and Mexican immigrant populations. The history of Bella Vista is vast, and one of the neighborhood’s modern highlights is the availability of different cuisine options.