Paul Cooke - SELLING AN INHERITED HOUSE

SELLING AN INHERITED HOUSE

Paul Cooke

Table Of Contents

Dealing With Inherited Homes: Best Practices For Families 1

Concepts To Know When Selling An Inherited Home

Distribution Among Family Members & Heirs 19

The Downsides To Inheriting

How Selling A House In An Estate Differs From Regular Home Sales

Determining The Value Of An Inherited Home 35

Four Ways To Sell Your Inherited House

Inherited Home Sales & Taxes

Prepping An Older Home For Sale

10. Small Improvements Can Gain You Thousands 71

11. Selling An Inherited Home

12. Using Curb Appeal To Sell Your Inherited Home For More 81

13. Importance Of Good Photos

14. The Process Of Selling Inherited Homes

Foreword This book is about people's lives being impacted by a loved one's death and walking through that part of the process of dealing with probate and inherited properties. Not exactly a New York Times Best Sellers topic of choice, but it's something almost every person deals with in their lifetime. It's an incredibly challenging and emotional season. Most likely if you're reading this Forward you are either in the throws of it, you believe you're about to walk through it, or you've already experienced it. The hope is this book gives you clarity, wisdom, understanding and greater peace as you journey ahead. When I first ventured into the real estate industry years ago, I did so with the hopes of helping people and seeing their lives changed for the better. That's been at the core of what I've wanted my life to be about. With real estate being the largest investment most Americans ever make, it's a significant place to be involved. It can impact the economic heritage of a family for generations. But it goes beyond the economics. Here's a little rabbit trail that relates. Purchasing a home is a life- changing event for people, especially the first one. I remember our first home purchase in Ft. Lauderdale, it gave us a sense of being established as a family and moving into a new season of life and responsibility. It changed the trajectory of our lives. Each home we've purchased since has marked a significant transition in our lives and the memories of that time are attached and intricately woven to that home. Our experience is not unique. Homes are connected to memories and they can be wonderful and deeply nostalgic or they can be tragic and heart- rending. Homes are where life happens. When it comes to loved ones passing on and leaving their home v

behind to family or friends (here's where it relates), that home will have those types of memories wrapped up in it. That can make it extremely challenging to move forward and make decisions concerning the home. By selling, giving away or (heaven forbid) throwing away items that belonged to that loved one, feelings of betrayal, not loving them, not cherishing or honoring their memory can bubble to the surface. I'm with you, I've felt it too! Those memories many times have emotions attached to them that you may be very unaware of. I've lived through it personally three times with both sets of our parents and an extended family member. Mourning, tears, anger, joy, gratitude, regret, fear, angst, rage ... not only do these emotions rise to the surface but they can happen at the oddest moments, like in the midst of handling loved ones belongings, at dinner with a sibling, or putting a child to bed. These emotions don't even ask for permission, they just interrupt and force themselves upon you. And they most definitely happen when you need to make decisions about the estate. How inconvenient! When someone you've wanted to love and wanted to be loved by passes and that relationship has been destructive and harmful to you, handling their inheritance can feel dirty and shameful. It can feel very natural to not want anything to do with those belongings because they bring up the pain that's attached with the relationship. It's like ripping off a scab from an old wound. The emotions can be raw and incredibly uncomfortable. These memories and feelings are all part of the process. Most times I've found I want to just get to the end of it all, but there's purpose in the journey. This book is not meant to get into these details, but it is to say that I relate to your journey. Mine's not the same, but it's gone in a similar direction.

My desire, hope and prayer is that this book helps to lighten the

load, give you some understanding of the process of inheritance and probate and aids in bringing healing, fresh joy, restoration, freedom and a new beginning from this challenging and emotional season. I know you'll find some very practical, applicable steps and helpful information to guide you, and others with you, through this season a little smoother and with greater success. At any time if you have questions about the content in these pages or just need a listening ear, please feel free to contact me, my information is on the back cover. As a Real Estate professional, but even moreso as a fellow inherited property alum, if I can ever be of service to you and your family with your real estate needs, drop me a line ... I'd love to help however I can!

Bless you in your reading!

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About Paul Cook aul Cooke Since this book is about Real Estate, it might be good to tell you why I do Real Estate. It also might serve you to know how I arrived in Real Estate as my chosen career. I almost feel like it was chosen for me. Let me explain. At the tender age of 14 I began working in construction, going back almost 50 years. My Dad was a contractor in eastern Kentucky where I worked for him helping to build new homes. I quickly grew to love homes, hard work, how they were built and maintained, designed and engineered. Later in life I had a season as a handyman contractor. I think those experiences set a solid foundation for a career in Real Estate. I loved athletics since I was a young boy and grew up to actually play professional golf overseas as well as become a golf instructor for professionals and amateurs. I was involved in starting a golf school and developing a golf instruction system that's still in use today. I learned much about running a business, being a self- starter, and the importance of great systems both in running a business and helping clients gain what they desire. But what I've done professionally for the majority of my working life has been as a pastor in a local church. I served for over 23 years in that capacity and loved it. I loved doing life with people and investing in people and being invested in as well. I loved being a part of something bigger than me, something eternally significant in its scope. As you may imagine, I learned much about communication and how the state of my own heart affected what and how I communicated. I learned a tremendous amount about people and what makes them tick and how resilient God made man, but also how fragile we are. I learned that I'm loved beyond what I can comprehend and because of that I can love others more that I ever thought. I also learned how to serve,

especially from my dear wife, who may be the most selfless servant I've ever witnessed ... and she does it with such joy. I believe these years helped to prepare me more for Real Estate than anything else ... more specifically to work with estate homes and the people and families walking through these very challenging times. Just one disclaimer ... I learned, I haven't mastered (although that would be really wonderful to do) or perfected. I've grown and moved forward, but I'm definitely still a work in progress. All of this is the backdrop to me now being a top 5% producer in residential Real Estate here in the greater Athens Georgia Area. This was never my goal (although I am competitive) and truthfully it was not even a thought, but it is what has happened. I would credit that to what's taken place in my life prior as well as the people who have invested in me since coming into Real Estate ... and God's grace. So, that's my story and I'm sticking to it! I hope I have the opportunity to serve you in some way, whether you end up selling or buying a home with me or not. Please feel free to contact me, maybe we can talk or play a little golf, buy or sell a home, or talk about life. It would be my joy!

What People Ar eople Are Saying about Paul Cook aul Cooke

Here are some folks I've had the honor of serving in the purchase or sale of a home over the years. If we end up going on this journey together, my aim is that you too would have a story like these wonderful people. You'll see, they have been gracious and kind in their words and it's humbling. My reality is I have had the privilege to work with some of the greatest people on the planet and this is evidence to that end! "I have sold or bought a number of homes and Paul Cooke is by far the best realtor my wife and I have ever used. He sold our house in 90 minutes and at 1% above asking price. He gave us great advise on what to do to sell it and he counseled us on how to get it ready to sell without spending a lot of money. He was always accessible when we had questions and made the whole process easy for us. I could not recommend any realtor more. He genuinely cares about his clients." - Andy R. "If you're looking to buy or sell a house in the Athens area, I can't recommend Paul highly enough. We started our house hunting process just before the initial COVID-19 lockdown, and Paul was incredibly helpful and responsive through the whole process - sending us regular updates when new homes were available, recording video tours of homes we weren't able to enter in person, taking us to the same home 5 or 6 times to meet contractors. Paul was great about proactively communicating and responding quickly, gave us helpful information about the local market and specific homes without being pushy or salesy, and when we did ultimately find the right home, he helped us negotiate a sale price more than 10% below the asking price (even in an incredibly hot sellers market). He walked us through numerous due diligence questions and communication with the xi

seller, advocated for us through closing delays on the seller's side, and was a pleasure to work with all the way to the closing table. Paul knows the Athens market, genuinely cares about doing what is best for his clients and will work his butt off to find them the right home. I would recommend him to anyone buying or selling a house in Athens with zero hesitation!" - Jordan S. "Paul was friendly, professional, and accessible from start to finish in our home search and purchase. Coming from out of state, the communication was different but never strained. Paul was responsive and cheerful, having answers or pointing us to the right people who could help us realize our dream of owning a home to retire in. He was a godsend!" - Tom M. "Once I had selected a home, he negotiated all aspects of the house buying process and answered any questions I had immediately. Paul was extremely helpful throughout the entire process. He first did a deep dive into my home buying needs and tailored the homes he showed me to my specific interests. Once I had selected a home, he negotiated all aspects of the house buying process and answered any questions I had immediately. The main issue with the house I bought was a required long closing period because of the specific life change for the sellers. Paul worked with their realtor to reduce the time of the closing period. He also helped with the mortgage process, providing the names of a local lenders that worked out very well." - Michelle S. "Your Home Sold Guaranteed Realty with Paul Cooke made it possible for us to find our new home. Paul was quick to get us on the search, answered any questions of concerns we had and directed us to the right people to keep the process moving to the end. He is very pleasant and professional. I would recommend him to anyone. He even went over and above and met us at a last

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minute request after we had looked at many houses for the day. And it was our gem. Thank you Paul for your dedicated service to us. We were truly blessed to have you as our agent!" - Andy & Marlene C. "Thank you, Paul Cooke, for helping us truck drivers find a wonderful home in Winder, GA. You were there for us from the beginning, sending us listings, sharing videos tours of homes (because we couldn’t be there to see the homes ourselves), giving us your best opinions when it came to buying a home, having patience while we went through the process of buying a home, having consistent communication with us whether it be through email or phone calls. He was easy to talk to, very friendly and we can call him family. Thank you again, for helping us save $20,000, over 9% off list price! May God bless you and your family." - G and Javy G. "My family and I were looking to purchase a home, and we just stumbled upon Paul Cooke while looking for a realtor, and we are grateful for this! We worked with Paul, and he was an awesome realtor. He took a personal interest in us and our struggles, and he worked relentlessly to find a home that met our needs. His diligence was impressive and, after a lot of work and patience, he got us into a home. We will be forever grateful." - Anthony M. "Paul is very nice, honest, and knowledgeable realtor. He’s easy to talk to and understands your wants and needs. I would highly recommend using Paul as your realtor. You won’t be disappointed!!!" - Ed R.

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CHAPTER 1 Dealing with Inherited Homes: Best ed Homes: Best Practices for Families Let me state the obvious ... dealing with an inherited home is a complex subject, and there are numerous complicated issues to resolve. A web search for “selling inherited property” returns more than 10 million results. A glance down the first page or two shows some of the issues: • Do You Pay Capital Gains Taxes on Property You Inherit? • What Taxes Are on an Inherited House? • If You Inherit a Home Do You Qualify for the $250,000 Home Sale Tax Exclusion? • What to Do When You Inherit Your Parent’s House, Home Inheritance Issues, and on and on. Additionally, it is common for a person selling an inherited home to have an emotional attachment to the property, with the sale being the result of a recent death in the immediate family of a loved one. This brings an additional dynamic into the midst of the transaction. It's not just cut and dry. Add to it the continuing property ownership obligations such as property taxes, insurance, utility bills, household and grounds maintenance—in addition to any issues with the settlement of the estate—and a rapid sale is often necessary. Getting a loved one’s house ready for the market can be anxiety-provoking, emotional, stressful and exhausting. It likely includes clearing out once- treasured belongings and depersonalizing the rooms. 1

Then there is the financial cost of making necessary updates to attract buyers. Sometimes heirs must deal with liens or hidden problems in the house structure or systems (i.e. foundation, electric, plumbing, and gutters), and there may be disagreements among beneficiaries about the sale price, or whether to sell at all. Family members can drag their feet, distracted by images of growing up in the home, slowing them from taking action. It can be challenging to let it go. Everyone needs to take the time necessary to deal with the passing of a loved one. Yet, sellers in this situation need to take the appropriate steps to learn the market, educate themselves, and have a reliable real estate agent and tax attorney or Certified Public Accountant (CPA), as an empathetic party who is there to help. These are just some of the issues that are faced in dealing with an inherited house. This little book is meant to offer some proven tips to help owners of an inherited property approach the issues in a structured manner, with fewer problems and more satisfactory results for everyone concerned.

VARIOUS WAYS OF SELLING

No matter if you are a single heir or one of multiple heirs to the property, selling it as quickly as possible will save money, time, stress, and the tiring effort involved in the settlement process. There are several benefits to selling the inherited property. For example, in some cases, along with inheriting property, the heirs end up inheriting unexpected commitments and difficulties with legal and financial implications. For example, if it is discovered there are environmental concerns (meaning things like mold, asbestos or water intrusion) or the

mortgage is “underwater” (meaning the mortgage balance is more than the home is worth), heirs may even choose not to accept the home at all, allowing it to go into foreclosure. Those who do not want inherited property should consult a lawyer promptly, as disclaimer paperwork will likely have to be filed. Traditional home sales methods are a perfectly good option if you find that there are no outstanding mortgages, the property is in good shape and does not require major repairs to sell. If you can afford any necessary repairs and cleaning while handling the selling process, then you can safely choose to sell an inherited property just as you would any other house. This is not to say that selling the property will be complication- free, but even when issues arise, it can still be worth it to persist with the sale. When there are siblings or family members who share the property with you as legal heirs, there can arise disagreements about the settlement process. Therefore, selling the property could save you the difficulty of dividing a singular property between numerous hands. Once the property is converted to money, the money can be more easily distributed among the heirs. One concern that you do need to address is the amount of time required to sell the property, since it is uncertain when it may sell. A short sale is another way to sell a home especially if there are mortgage payments due which you are unwilling or unable to pay. If one or more heirs inheriting the property have an urgent need for cash, then a short sale can be an option. At times, you might also feel that you just want to get rid of the burdens an inherited home imposes by selling it quickly so you can get on with your life as smoothly and quickly as possible. A short sale can be an option. We do offer some unique solutions apart from a short sale that are proven to rapidly sell a home when that is paramount. Having

all the options allows you to make an informed decision that benefits all those involved. If the house goes to probate, even if there are no residents, the property must be maintained. The property taxes, insurance premiums, utilities, homeowners association fees, and other ongoing costs must be paid by someone. Either that or the property can lose value or even be lost totally. Depending on how long the probate period lasts, families may need to pay for many months of maintenance, along with the legal fees and other expenses connected to owning and selling the property. At the end of the probate, you may also have to go through the effort and expenditure of repairing and selling the home. Under such conditions, you can very possibly lose more than you make (including your time and effort), thus it may be wisest to simply sell the home to investors. There are numerous options that a good realtor can help provide, if this is the direction you wish to pursue. Another somewhat common solution is for one of the heirs to buy the property from the others. Ordinarily, if you inherit the home with your siblings without any remaining mortgage, the rule is that ownership is to be evenly split unless otherwise stated in the will. If one of the siblings is interested in keeping it while the others want to sell it, the interested sibling can buy out the others using conventional financing or cash. The cost involved in this process can be minimal and includes the appraiser’s fees and the closing costs. If this will work, you pay your siblings in cash for their shares and get the title of the property transferred into your sole name through a deed. Make sure you have a good attorney to cover all the bases and help make the process as smooth as possible.

Alternatively, a private agreement can prove useful under some

circumstances. For instance, if you or your sibling(s) cannot qualify for a mortgage, the one who does not wish to keep the house can finance the transaction. This will mean you will not need a home loan or incur out of pocket expenses. For a private agreement, you make a promissory note to your sibling for his or her share of the value as assessed by the appraisal. The amount due to him or her can be paid in monthly installments along with interest (very similar to a mortgage payment to a bank). With this arrangement, you can buy out the property over time. If necessary, you may also make a deed of trust that grants the power to foreclose if someone defaults on payments. Again, it is wise to seek legal counsel and have them draw up the documents. This topic of selling the property is covered in more detail in Chapter 7.

Renting the property could be the solution if none of the siblings are interested in keeping the property personally, but as a group the heirs see benefit in the house as rental or investment property. If you have a friendly relationship and can get along for a long period as co-owners of the property, you can rent out the

property and take your share out of the proceeds monthly. If one of the siblings manages the collection of rental payments and arranges maintenance for the property, the effort can be rewarded by the others with an increased share. Whatever the terms are, though, it is advisable to record them in a written agreement to forestall future disagreements and misunderstandings.

Many times, though, the best arrangement is still to sell the

property, subtract the expenses and costs involved, and the commissions paid, and then divide the resulting amount among the heirs. If you sell the property as soon as you inherit it helps save on the capital gains tax. Capital gains tax for sale of the inherited property is calculated on the property value from the time of the death of the decedent until the time of the sale of the home. Whatever the increase in value is in that time period is what you pay capital gains taxes on. Since the difference may not be much if the time between death and sale is short, you may be left with nothing to pay in capital gains tax. (See Chapter 8 for a more in-depth discussion of taxes.)

NAVIGATING FAMILY ISSUES

Disputes among siblings or legal heirs over the settlement of inherited property are quite common. Often, disputes over a property can be influenced by past relational issues. In the absence of parental guidance, adult siblings are left to face the scenario of ambiguity or disagreements over their rightful role. It's a challenging time. It is essential that you work to ensure that disputes and disagreements do not lead to litigation. Litigation will only worsen the situation by causing issues with family members, and creating uncertainty and wasting time while waiting for legal issues to be settled, as well as the incredible expense and aggravation associated with legal hearings. The tremendous cost involved in litigation is certainly a wasteful expenditure when there are other solutions. Litigation is not the peacemaker’s choice—strive to prevent it whenever you possibly can. This situation can be avoided by keeping the emotional heat down and a compromising frame of mind in the forefront. There is generally a solution that can be found for a peaceful settlement.

Where creative solutions to these problems can be facilitated, there is mutual gain for all concerned. Sometimes there's just the need to have someone be the mediator in the midst of a difficult time. There are a number of resources available that may work for you, such as: A trusted family friend who's willing to be involved; a pastor or priest who will be an unbiased counselor; or a professional PeaceMaker certified counselor. In this day and time it may even be possible to have someone serve you effectively via Zoom meetings or through some other online meeting platform. A lawsuit for partition should be the last resort for you to settle the inherited property if you cannot come to an amicable agreement with your sibling(s) over the settlement. If it comes down to it, you can file a lawsuit asking the judge to order the sale of the home and terminate your co-ownership. This is a complicated process and the judge usually appoints a mediator first, to get the property ready for sale. If you are at odds with each other, you and your siblings might not be able to do this. Therefore, you will need to have an agent sell the home and mediate between you.

HOLDOVERS LIVING IN ESTATE

When inheriting a property, you might have to address the issue of holdovers living in the estate. A holdover is someone who is living in the estate after the death of the owner. If one of your siblings or yourself is living in the property, you need to come to an agreement with all the heirs regarding whether the concerned individual will continue to live there or will need to vacate. In the case of continuing to live there, the terms must be clearly drafted. If the right to remain there is mentioned in the will, then it cannot be challenged. If it has to be challenged for some reason, the necessary legal proceedings must be adhered to.

If the decision is made to sell the property, then the property must be vacated in a definite timeline facilitating the sale. If the occupant wishes to continue residing in the property despite the sale, then it must be dealt with accordingly. If you are inheriting a property with tenants living in it, you must fulfill some responsibilities from the position of a landlord. If the property is sold, the legal rights of the tenants must be given due consideration. For complicated situations like this, consult an attorney.

SPLITTING UP ITEMS INS G UP ITEMS INSIDE

Decisions pertaining to the settlement of the property or the division of its contents among the legal heirs must follow the guidance given in the will. Where there is no will enacted by the owner of the property, then the state’s laws regarding intestate succession will come into play. If either the will or the law requires the estate to be divided equally, the heirs must act accordingly. Sentimental objects can hold intrinsic value to heirs and settling them should happen out of the legal conventions in agreement between the siblings. Since the value of sentimental objects is often subjective and cannot be decided by an appraiser, the real challenge comes when more than one sibling wants the possession. Negotiation and compromise are called for. This will be addressed in more detail in chapter 3. We are happy to provide you with recommended local estate attorneys, CPAs and even estate sale companies to aid you in the process.

CHAPTER 2 Concepts to Know When Selling An Inherited Home ed Home

There are a few legal concepts and other issues that are very helpful to know about when dealing with an inherited home so that you can make the wisest informed decisions and avoid complications.

WILLS

Most inherited homes are passed at the owner’s death by the terms of that person’s “will.” A will is a person’s last chance to do whatever they wish with their property. It is a legal document with the authority to dictate the disposition of a person’s property at

death and is very difficult to contest, no matter how apparently unreasonable its terms may be. Yes, someone of “testamentary capacity” (sound mind) really can leave a massive fortune to charity or a favored pet, bequeathing nothing to children or other relatives. Where the maker of the will is the sole owner of a home, that person enjoys complete rights to it (subject to liens or mortgages) and can draft the will in favor of legal heirs or anyone else he or she wants to inherit the property. An individual appointed to administrate the estate of a deceased person is the “executor.” The executor’s main duty is to carry out the instructions and wishes of the deceased . The executor is 9

appointed either by the maker of the will or, in cases where there was no prior appointment, by a court. The executor will ensure that the transfer of titles happens as stated in the will. The existence of a will concerning the estate makes the process of inheritance indisputable and smooth. If there is no will in place, then the established state laws that govern “intestate succession” (death without a will) will dictate the handling of property and, if needed, a court will intervene to settle issues. The word “probate” carries negative connotations with many people such that they work and plan to avoid it. However, probate does not have to be a difficult or drawn-out proceeding. Currently some 35 states allow simplified probate proceedings, called “common” or “informal” probate. The difference between commonand “solemn form” (informal) probate begins when the executor submits the will to the court. For example, when an executor chooses to pursue common form probate in New Jersey, that executor can file the will at the court clerk’s office and fill out an application for appointment to the executor position. Will witnesses do not have to be present. Where the executor chooses to probate the will by solemn form , a legal complaint must be filed with the probate court, asking the court to open probate proceedings. Solemn form probate involves sending notice of the proceedings and a copy of the will to all the decedent’s heirs , whether mentioned in the will or not, as long as they would have inherited if he had died “intestate” (without a will). Common form probate does not require this step, although heirs can request a copy of the will from the executor. The solemn form probate notice includes a date for a court hearing in some states. All interested parties have the right to attend this hearing, where a judge will admit the will for probate if he or she determines it is valid and meets the legal requirements.

With most estates, there is no reason for the executor to go through a solemn form probate if common form probate is an option. An executor generally chooses solemn form probate only if she believes an heir or beneficiary might contest the will. Solemn form probate restricts heirs and beneficiaries from filing a will contest after a court-ordered date. Often, judges hear potential will challenges during the initial court date, when they decide if a will is valid. The will is either declared invalid, or is declared valid and can proceed through the rest of probate uncontested. In common form probate, heirs generally have years to decide if they want to contest the will, which can leave the estate in legal limbo. Even after the estate settles and closes, there remains the possibility that an heir might file a contest to reopen it again. For example, Georgia allows heirs four years in which to contest a will probated by common form. Beneficiary distributions made through common form probate are not final until the challenge deadline passes (up to four years). This means a beneficiary can receive an inheritance, only to have no choice but to return it to the estate years later if another heir successfully challenges the will. With cash inheritances, the money could easily be long gone by that point while real estate and tangible assets might fall into disrepair. Executors generally will not risk this and will ask the beneficiary to sign a binding agreement to return the inheritance to the estate if necessary, or request solemn form probate. If the executor mentioned in the will is unable or unwilling to serve, then an appendix will be created to appoint the new executor. However, before the appointment of the administrator, there should be a declination letter from the executor (if he or she is still living and not incapacitated).

In this event, the executor can be selected by a majority of the beneficiaries. For the sake of minors or incapacitated heirs, the court appoints a guardian ad litem, which is just a fancy way of saying someone to look out for the interests of the minor heirs. Probate is not required when there is no property to be divided under the terms of the will and testamentary letters are not necessary to take control of assets in that case. It is essential to file the will of the deceased with the probate court. Unlike bank accounts, real estate properties will not automatically pass on to a surviving co-owner. To transfer the title of an automobile, probate is not needed, but real estate transfers require it. In the absence of a will that names an executor, state law will list people who can legally discharge the responsibility. If there is a necessity for a probate court proceeding, then the court will choose the administrator based on a priority list. The “intestate succession” laws vary between states as to what happens to a deceased person’s property who dies without enacting a valid will. If the deceased person was married, the surviving spouse will get the largest share of the estate. In cases where there were no children, the surviving spouse inherits the entirety of the property. The laws of every state dictate how children and other heirs inherit the property differently, though, and will need to be studied to make sure you fully understand the state laws that will be affecting you and your property. As you can see this process is quite involved and can be very complicated. It's always advisable to find a good lawyer who can walk you through the probate process.

TAXES

While the authors of a will pass on their property with the best of intentions, inheritors often must spend a great deal of money, effort, and time if they want to keep that property. The tax burdens accompanying inherited property are frequently a matter of concern and confusion. When inheriting a home,

you need to know what kinds of taxes are attached to the home and what your obligations are. Note that tax laws significantly differ from state to state, so you should make sure to understand the inheritance tax laws of your state or have a tax attorney or good CPA working with you. For simplicity, the broad categories of taxes applicable to inheritance are briefly summarized here: ESTATE TAX: The estate tax in the United States is a tax on the transfer of the estate of a deceased person. The tax applies to property that is transferred via a will or according to state laws of intestacy. Other transfers that are subject to the tax can include those made through an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries. According to the IRS, the estate tax is one part of the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax, applies to transfers of property during a person’s life. In addition to the federal estate tax, many states have enacted similar taxes of their own. These taxes may be termed an “inheritance tax.” If an asset is left to a spouse or a federally recognized charity, the tax usually does not apply. In addition, a maximum amount, varying year by year, can be given by an

individual, before and/or upon their death, without incurring federal gift or estate taxes: $5.6 million for individuals and $11.2 million for married couples. The annual gift exclusion amount is $15,000 for 2018—up from $14,000 where it’s been since 2013. • Inheritance Tax: Heirs pay federal inheritance tax on the net worth of their inheritance. The net worth is the gross value less certain deductions, a mortgage that must be paid off on an inherited house, for instance, or a marital deduction for property inherited by a spouse. If the result is more than the IRS exempt amount for a given year, the heir must pay an inheritance tax at the federal income- tax rate for the non-exempt amount. • Property Tax: Heirs may have to pay property taxes as soon as they inherit real estate and will pay them for as long as they own the house. Many states cap how much the assessed property value can rise from year to year, but when someone buys or inherits real estate, it will be reassessed at current market value. Even if subsequent assessments are capped, the initial reassessment can result in heirs paying thousands of dollars more in taxes than the previous owner. Some states offer an exemption; California state law, for instance, says that if the heir is the spouse or child of the owner, there is no reassessment. • Capital Gains Tax: Capital Gains taxes are applicable when you decide to sell your inherited home for the fair market value or more. This was discussed in chapter 1. Summarizing, it means you will have to pay taxes on your profits from the sale of the property, based upon the increase in value from the time you inherited the property to the time you sell. Generally, you will not be required to pay any capital gains tax if you sell the

property immediately after inheriting it, since the property value will not have had time to increase.

• Reporting the Inheritance: It is necessary for the executor of the estate to report the inherited property by filing an estate tax return. The “cost basis” (which we will talk about more later in the book) of an inherited home is decided based on when you inherited the property. In most cases, the basis for an inherited home is the market value of the property on the date when the deceased person died. • Reporting the Sale: When selling an inherited home, you are expected to report the sale on your income tax. Subtract the amount you received from the sale from the base amount to calculate whether you gained or lost from the deal and report it on the IRS Schedule D form. You will also need to copy the gain or loss figure over to your 1040 tax return form.

NAME ON PROPERTY

When you inherit personal property (like furniture, artwork, etc.) the process is simple and the procedure is straight-forward. The will or the court’s decision may be enough to directly transfer the property to you. In the case of inheriting real estate, things can be a bit more complicated. This is because the titling document showing ownership of the property must be modified to state that you are the new owner. Generally, in this case, the executor of the will or the administrator nominated by the probate court will issue a new deed that names you as the owner of the property.

The documents you will need in this regard include the death

certificate and probated will of the previous owner, if available. You must consult the original deed of the property to confirm that the property was not owned jointly at the time of the death of the deceased. If the property is/was owned jointly, then the surviving owner inherits the property in full. Therefore, you will have to confirm whether you can inherit it by reading the death certificate and determining the order of inheritance. If the person that you inherit the property from has died first and left behind a co-owner, then the property would revert back to the other owner, leaving you to establish your claim as the legal heir to the property. If the will lists you as the inheritor, then you will require an executor’s deed. If the inheritance is facilitated by the court in the absence of a will, then you must present an administrator’s deed. Both kinds of deeds must describe the property legally and mention your name as the new owner. Along with the administrator who issued the deed, you need to sign the new deed in the presence of a notary public. If needed, you must also be able to produce a copy of the probated will as part of making the deed.

LIFE ESTATES

According to its legal definition, “life estate” is not ownership, but the right to use or occupy real property for one’s life. Often this is given to a person (such as a family member) by deed or as a gift under a will with the idea that a younger person will then take the property upon the death of the one who receives the life estate. Title may also return to the person giving or deeding the property or to his/her surviving children or descendants upon the death of the life tenant—this is called “reversion.” Examples of creation of a life estate include, “I grant to Sally Smith the right to

live in said real property until her death,” or, “I give my daughter, Sadie Smith, said real property, subject to a life estate to Sally Smith.” This means a woman’s mother, Sally, gets to live in the house until she dies, and then the woman’s daughter, Sadie, will own the property. If you run into a situation where you believe a Life Estate might be a reality, make sure to consult a good estate attorney to walk you through the process. Living trusts have come to replace the role played by life estates, which are not as commonly used today. However, there are some advantages to this form of inheritance. For example, this method is useful to the heirs as a means to increase the property’s value following the death of the decedent. A life estate can also help avoid probate, which is a legally required process to transfer the property from the deceased to his descendants, but which can be sidestepped by using a life estate instead, since it is not technically an inheritance. A life estate can also be called an “instant transfer.” There are, of course, tax implications when using a life estate. Section 2036 of the Federal Estate Tax Code treats life estates as a gift. The gift tax must only be paid if the value exceeds a specified amount. If the property is sold after the end of a life estate, there is no net gain that needs to be reported on taxes because of the value step-up. We are only scratching the surface here in dealing with taxes, so it is wise and can save you a great deal of money and time by finding a CPA or tax attorney to help you settle your loved one's estate. We are happy to refer local tax attorneys or CPAs we use and highly recommend. Just give us a call or text, my contact information is on the back cover.

CHAPTER 3 Distribution Among Family Members & Heirs

While drafting a will, its maker usually makes provisions for the major parts of his or her estate—cash, stocks, expensive jewelry, real estate and heirlooms. However, it is common that people do not make provision for most of the more mundane personal property items in their will—furniture, automobiles, household effects, and the large number of other items acquired and stored over a lifetime. The usual provision is that the remainder of the estate be divided equally or equitably among the heirs. Dividing the personal property of a deceased family member is emotionally challenging and can engender hard feelings and give rise to disputes among heirs. To assist with this, here's an equitable process outlined below:

1) SORT OUT ITEMS F T ITEMS FAMILY MEMBERS INTEND TO KEEP

This first step requires the time, energy, and fortitude to go through every item in the house that you or your family members intend to keep. When it's closely following a loss, it can be painful and exhausting to inventory and dispose all the possessions left behind. Before moving beyond this step, it is crucial to establish a boundary or limit to who among the family members possesses the right to keep sentimental items or properties, especially among siblings. If the will or law requires the property to be 19

divided equally, then you must follow it.

For better organization, you are encouraged to separate the items you wish to keep in different containers and/or locations to avoid confusion with other items you intend to sell, donate, or throw away. Mutual agreement between siblings or other family members can decide who will keep which sentimental objects without further dispute. There are numerous ways to divide objects equitably. Here's just one example. A deceased parent left an antique firearms collection to be divided equally between his four children. There was an uneven number of items of varying values and each sibling wanted some of the same items. A solution is to have the collection assessed, item by item, by a professional dealer. This establishes a total worth for the collection, such that each sibling knows the dollar worth of his or her part. The collection is laid out in a room, each piece tagged by value. A coin flip decides which sibling will choose an item first, second, and so on. The siblings then go around the room choosing until their value was reached. In the end, the siblings will not have the same number of items, but each received an equal share of the collection’s value. In the event of serious disputes over the equal distribution of items between heirs, the family can resort to working with a mediator to resolve a fair distribution of items or properties. This is an equitable system for when the family does not wish to liquidate the assets or rejects joint ownership between heirs. With a mediator, each member submits his or her own prioritized list of items. The mediator then prepares a list for each member of the family of the items allocated for each of them.

Each member will then show their list of preferred items to the other members for negotiation and adjustment. If you come across any papers, be sure to thoroughly review each before proceeding to throw them out. Important key financial documents such as wills, trusts, addenda, real estate deeds, and titles should be kept. Beyond that, it is up to the heirs to decide which sentimental photos or other memorabilia they want to preserve.

2) SELL VALUABLE ITEMS O LE ITEMS OR PROPERTY AND DISTRIBUTE THE NE TE THE NET PROFIT EQUALLY

In a scenario where you and your siblings have inherited real estate from your deceased parents, it is important to seek mutual terms as to whether the property should be sold and the profit divided, or if you wish to keep the property as rental or

investment income, or simply share the use of the house.

In some circumstances, one sibling may want to keep the home while others have no interest in it or want it sold for the financial gain. One way to resolve an equal division of value is if there are other assets in the estate. Through this agreement, the one who wants the house gets to keep it while the others get cash or other assets (such as cars, furniture, artwork, etc.), but ultimately everyone receives an equal value of assets. Another option would be that the sibling who wants the house would buy out the other siblings’ interests in it (as stated prior). In all of this, it is wise to seek professional advice from real estate agents and attorneys. They can give personal perspectives from experience on how to sell your house at the highest possible value in the market, and can help you make sales decisions. We

are happy to provide you with a free Current Market Analysis (CMA) of your house to aid in determining the value. Nowadays, it is a more convenient and customary practice to sell any unwanted items online for extra cash rather than simply discarding them. You can hire an estate appraiser to estimate a value for furniture, jewelry, and antiques. Such professionals can provide you an estimate for any valuable items, usually charging an hourly or per-project fee, depending on the location of the house and the type of appraisal you want. Another traditional method is to hold an estate sale. Here is a tip on maximizing profit from an estate sale in your neighborhood: price every single item you want removed from the house. You never know what people might collect or buy on impulse! Seek extra hands to help you conduct the business aspects, such as running the cash box or promoting and selling items. Often, an estate sale is not one day, but perhaps two, three or four. Make sure to do a “telephone pole”, online advertising (Facebook Neighborhood, Online Athens [or whatever city or county you are in], etc.) and don't forget signage (it's so important) in your community to get the word out about your sale. This will help to attract customers from areas close-by as well as out of the area to come to your sale. Some cities require some sort of permit for holding a sale; ensure that you comply with the local authorities. It is helpful for the customers if you post signs or directions in the neighborhood to assist people in finding your sale—be thorough! Good signage is always appreciated, and helps make sure people actually make it to your house instead of going on an impromptu tour of the neighborhood and returning home with empty hands. Make sure signage is large enough and lettering large and bold to make it easy to read from a distance.

If you are unable to sell all your remaining items by the last day of your sale, discount your prices (maybe 50% or more), or simply give items away to ease your disposal burden. An alternative to a DIY estate sale is to hire an estate sale or auction company to handle the sale for you. They generally get paid based on a percentage of the sales after they have quoted it with you upfront. Expect to pay 30% to 50% or higher of the entire profit of the sale. Another option is to hire an estate liquidation company to handle a sale. A liquidator is someone you can hire to clear off any items you don’t intend to keep and have decided to sell, discard, or donate. Like searching for a real estate agent, it is important that you do a background check on the company, search for contact information, and call previous clients regarding their opinions and experiences working with them. Typical estate liquidators keep about 35% to 40% of the sales profit, but this percentage can vary depending on services offered. Have a discussion with the company regarding the research, appraisal, and pricing of your items, the duration of the sale, and how much negotiating with buyers the company will do.

3) DONATE ITEMS T TE ITEMS TO THOSE IN NEED

At a certain point, you may want to donate items. Donation is a generous, charitable act that helps those in need instead of simply throwing items into a dumpster. You have a variety of options when donating, including orphanages, veterans’ organizations, homeless shelters, disaster victims,

and an increasingly wide range of other choices. Items that you no longer need can include almost anything, such as furniture,

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