Inheriting a house: what to do with the property?

You've just learned that a loved one has died. During this stressful and emotionally trying time, you've also learned that you're inheriting a house. While you're grateful for this unexpected opportunity, knowing what it entails can be stressful.

Inheriting a home from your parents or other family members suddenly means there are a lot of things to do and a lot of questions to answer.

• Should you keep or sell the inherited property?
• What if you inherited it along with another sibling or other family member?
• Is the property still mortgaged?

This article provides detailed answers to these questions and more.

Who inherits the house upon death?

If the deceased left a will and named his or her heirs, the designated heirs will receive the house.

In the absence of a will, the law determines who the deceased's legal heirs are and how the property is distributed according to family relationships. This is known as a legal succession or intestate succession.

When there’s more than one heir

You may not be the only heir to the house. You may have inherited the house along with your siblings or other family members. That's why communication is important when you inherit a house with several other people.

But what do you do with the house you inherited? If you want to keep the house, but the others want to sell it, the solution may be to buy out the other heirs.

A buyout essentially means that one of the heirs becomes the sole owner of the house, allowing the other heirs to walk away with their share of the inheritance. This option can reduce family conflict in the future because it means you and your siblings (co-heirs) won't have to fight over who owns what.

On the other hand, if everyone agrees to keep the house in the family, you'll have to decide what to do with it (turn it into a vacation home, rent it out, etc.). In this case, don't forget that you and the other heirs need to define each other's responsibilities.

If you cannot agree, you may need to involve a third party, such as a mediator or judge, to make an impartial decision about the best course of action.

Verifications to make on the inherited property

While inheriting a home may seem like winning the lottery, you must be prepared to make difficult decisions, both emotionally and financially. But to do so effectively, you need to perform the following important checks.

The history of the house

When you inherit a house, it's important to know its history and condition. No matter how old the house is, you may be faced with unpleasant surprises that can lead to tedious and costly work.

So try to get all the information you can about the house. This includes when the last maintenance was done (roof, floor, toilets, plumbing, etc.). This will provide important information such as costs and expenses related to the house, such as property taxes, insurance, etc. That's why we advise you to hire professionals in this field.

In particular, you should consider notaries, estate planners, financial advisors and accountants. For example, an accountant can help you determine your tax situation, a notary can explain your legal options for buying out other heirs, and a financial advisor can tell you the best way to maximize this new asset.

The existence of a mortgage

This is one of the financial and legal responsibilities that can be attached to an inherited home. When the owner of the house dies, and his or her mortgage survives, the mortgage lender still has to be repaid and can repossess the house if payments stop, for whatever reason.

So if you don't know if there's an outstanding mortgage or who holds it, you can check the title of the house, which should show the name of the lender. You can also request a credit report on the deceased. The credit report will show any outstanding loans, including mortgages.

If you find that you have inherited a mortgaged home, here are some of the options available to you:

• If the lender and mortgage terms allow, you can assume the mortgage and make the payments.
• If not, you can also arrange for the property to be sold. The proceeds from the sale of the house will be used to repay the loan.

The property tour

In an ideal world, you'd inherit a home in perfect condition, ready to live in or rent as soon as you get the keys. But for many heirs, inheriting a house also means inheriting all the problems that come with it.

These can range from small decorative touches that increase the home's value on the market to larger projects needed to make the space livable. That's why it's important to visit the home you've inherited and, better yet, have it inspected by a building professional.

The current state of the house can help you make your final decision since the amount of work you'll need to do and the geographical location of the house can influence its final use. So, if you want to live in the house yourself, all you need to do is make sure the place is safe. Any decorative or non-essential improvements are at your discretion.

If you want to turn the house into a rental or recreational property, you'll have to put in a little more effort. You may need to upgrade certain appliances and add unique design elements here and there to increase its value on the market.

But if you want to sell the house, you'll need to make all the necessary renovations to meet buyers' expectations. Putting the house on the market may also require the most repair work.

Is the capital gain taxable?

Generally, if you are the heir to a home that was the deceased's primary residence, there are no tax implications to consider. However, if the home was used for other purposes, such as a rental or recreational property, there may be taxes to pay.

In Canada, there is no estate tax, but you may have to pay a capital gains tax, which would accrue after you inherit the home, as long as it was not used as your principal residence.

It's also important to note that there may be other costs associated with inheriting property, such as provincial probate fees, which are a small percentage of the value of the estate. If you plan to keep the property as a vacation home or as a source of rental income, you'll need to consider annual property taxes, insurance, utilities, etc.

Inheriting a home: how does the estate sale work?

Selling an inherited home is not an easy task if the home has personal significance to you. However, there are several cases where you should consider putting it up for sale. Selling your inherited home is the best option in the following cases:

• The house is in another city or state, and you don't want to move.
• You share the inheritance with siblings or other family members;
• The house is in serious disrepair and you don't have the time or money to renovate it;
• You can't afford the mortgage and upkeep.

If you decide to sell, it's also important to be aware of all the obligations specific to an inheritance situation, such as waiting for the estate to be settled by the court, paying property taxes, mortgage payments, etc. We therefore advise you to seek the assistance of professionals in this field.

Refusal of inheritance: a legitimate right

Sounds unlikely, doesn't it? But it does happen. Some people don't want to inherit a house for various reasons. Perhaps they have a broken relationship with the deceased and simply don't want to take what they consider to be the fruit of dirty money.

Whatever the reason, it is possible to refuse or renounce an inheritance, but it must be formalized properly and promptly. As the heir, you have six months from the opening of the estate (usually the date of death) to accept or reject it. It is generally wise to wait for the inventory before making a decision, as it may reveal unknown assets or creditors.

In short, inheriting a home can be complicated and emotionally charged. Since the options available to you all have their pros and cons, the choice of which option to pursue should always be guided by your ultimate goal. That's why it's best to surround yourself with a team of professionals and determine what makes the most sense for you when it comes to inheriting a home.

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