A Family Approved Guide to Selling Inherited Property
If your family is the type that fights over who gets the turkey leg on Thanksgiving, prepare for all hell to break loose if there are multiple beneficiaries in an inherited property that is sold. This guide is an overview of what to consider when making estate plans and selling inherited property.
Besides dealing with selling inherited property, we encourage you to use the financial tools at Goalry.com to make sure all your affairs are in order before you pass on your wealth to heirs. Get a member key to get started.
The basic tools you may want to use are:
Budgetry for budgeting
Billry to pay bills
Debtry to pay off loans
Taxry for help with income taxes
Wealthry because you want to build wealth to leave a legacy for your heirs
Disclaimer
This guide is for educational purposes and does not represent legal or financial advice. The best advice I can give is to discuss these issues with competent legal, tax, estate planner, and other professionals. When selling inherited property, make sure anyone offering advice is engaged to represent your interests and has no conflicts.
Be aware that a very valuable estate will potentially attract those who do not have your interests as their priority. If you think the fights over a turkey leg are bad, try fighting over millions of dollars in value when selling inherited property.
Think of this guide as a checklist of things to understand, consider, and manage when it comes to estate planning and selling inherited property.
Reach Your Financial Goals with the Accury Store.
Types Of Property
The considerations of how to deal with selling inherited property are quite different depending on the type of property, which might include personal property, real estate, alternative assets, and digital assets.
Personal Property
The definition of personal property is anything that you own that can move. Inherited personal property might include an auto, a recreational vehicle, a boat, stock, bonds, cash, furniture, or many other things that have value.
Real Estate
Real estate includes land, buildings, and any rights associated with ownership, such as mineral rights, air rights, water rights, etc.
Alternative Assets
Alternative assets are any assets that are not stocks, bonds, or cash. One problem with some estates is that there are no accurate records of what is owned and where it is after someone dies. The will can say that it gives all the gold bars to an heir. That is useless if nobody knows where the gold is.
Digital Assets
Digital assets are a newer form of property that might include cryptocurrencies, non-fungible tokens (NFTs), and other intellectual property rights or smart contracts. Digital assets are a special class because they cannot be simply named in a will or identified in a trust.
Listing the digital assets and identifying where they are is important, but that is not sufficient. The beneficiaries have to get access to the digital assets. For cryptocurrencies, NFTs, smart contracts, and other digital assets, this means they must have the private encryption key, or they cannot access the asset.
Title/Ownership and Liens
Before you try to sell inherited assets, you need to ensure that you have a title that is free and clear of other liens and restrictions. One nasty surprise is to find out that there is a lien against the family home that no one was aware of besides the person who died.
Another problem might be government actions to recover medical expenses paid under Medicaid or collect past due taxes of the deceased.
For real estate, you will engage the services of a title company to write title insurance that makes sure, when you sell the property, the title can pass to the new owner. For personal property, you need to conduct due diligence and look up any UCC filings that are liens on the property.
Chain of Title
A chain of title is a historical record that is proof of ownership. For fine art, this is also called provenance. Art that has been appraised by a professional and has an unbroken chain of title is considered more valuable than art you found in the attic, which no one knows about the history or value. The art in the attic may be extremely valuable or worthless, and you need to use special care to evaluate such items.
Will
The last will and testament of a person is a legal document that describes the person’s intent who died. It says who gets what in terms of the distribution of assets to the person’s heirs.
Executor
The executor of an estate is the person chosen by the deceased before death to administrate the estate. The executor has quite a bit of power but must follow the specific instructions of the will. If there is a family dispute, the executor is usually in the middle of it. This thankless job may be very frustrating.
Probate
Probate is a legal procedure that is complex and time-consuming. With proper estate planning, it is possible to avoid probate and the costs/delays associated with the state-supervised process. However, some people die with only a simple will, which forces the executor of the estate to go through probate.
Additionally, people who leave an estate and do not have a will, cause the estate to go through probate. In such a case, a judge determines who gets the assets based on the next-of-kin rules in the state where the person died.
Trusts
Trusts are useful to set up as a method to avoid probate. Use a competent trust attorney if you decide to create a trust. Trusts can be revocable or irrevocable. The difference is that an irrevocable trust is permanent.
Trust can have specific provisions that detail how assets transfer and when or if they may sell.
A living trust is a special form of trust that allows the assets to automatically pass to the surviving partner of a marriage or a domestic partnership. For married couples and others in close relationships, a living trust may be the appropriate legal vehicle to pass the ownership to the surviving person without any need to go through probate or any complex legal process.
Shared Interest
When there is a shared ownership interest in some property, which means more than one person owns a piece of it, this is when things can get a bit challenging. Depending on the asset type and the portion owned, the majority owner may have the right to sell the property without getting permission from any other owners.
Majority owner
Apportionment
Sometimes apportionment of a property is possible. Apportionment means that the property is physically divided. It splits into pieces according to the percentage of the ownership that is inherited.
This apportionment process can be done voluntarily or under a court order as the result of a lawsuit. One serious trouble with apportionment comes up if the property is not universally the same quality at all places.
Valuation
Achieve a reasonable valuation by using a third-party appraiser that is acceptable to all parties involved. Getting a fair value may be helpful when one of the parties does not want to sell and instead prefers to buy out the ownership interests of the others.
Another good reason to get an appraisal before selling inherited asserts is that the true value may be a surprise. An old car covered with dust may appear to be junk and turn out to be a rare vintage vehicle worth a fortune.
Disputes
Disputes over inherited property are very common. If that is the case, what is a family-approved guide? Effective estate planning happens before the person dies. If something may be controversial, it is possible to work out a detailed agreement to resolve a dispute before the person’s death and before the inheritance occurs. If people do not cooperate, they can be written out off the will.
A person, who is of sound mind, who wants to give something to heirs has the power to allocate assets in any way desired.
For example, it is possible to use an irrevocable trust that gives the asset to your heirs in a very clear, unchangeable way. If it takes death for the title to transfer, this may be an effective way to have your wishes followed exactly.
You set up the specific estate plan with legal documentation before you die, and then it triggers automatically upon your death.
Estate Taxes
Estate taxes do not apply if the estate is smaller than $12.06 million. If the total assets of the estate are valued higher than this amount, the estate taxes may be very high for federal taxes. The federal estate tax paid could be from 18% to 40% on an estate worth more than $12.06 million. Some states add additional estate taxes.
High-net-worth individuals need to work with a financial professional on estate planning to minimize any estate tax.
For example, one strategy is to work with life insurance proceeds, which are not taxable. To lower the estate assets, below the estate tax limit, it is possible to invest in life insurance products that distribute the death benefits without causing a taxable event.
Summary
Work with a financial professional. Make sure your wishes are known. Get the legal documents and strategies put in place so that your estate gives your assets to your heirs for their benefit as you wish.
When selling inherited assets, work with professionals to avoid the problems identified here and other things that can go wrong. If there are people who may claim an interest in the net proceeds of an inherited asset sale, then be careful to avoid self-dealing or anything that might seem fraudulent. Even if you do everything perfectly, you may still face a lawsuit.
Always consult with legal, tax, and financial professionals when making decisions about such sensitive matters.