Monday, August 17, 2009
Selling house may be best course for inherited property
Each Monday, Dan Danford answers a question from a reader in this space. If you have a question you'd like to see addressed, please post it in the comments section or e-mail the blog administrator Robyn Davis Sekula at firstname.lastname@example.org.
QUESTION: My two sisters, two brothers and I will inherit a house in Minnesota from our uncle, who has no other heirs and is in a nursing home. My desire would be to sell it and for us to split the money.
However, my sisters want to keep it. None of us is wealthy. All of us are in our 50s and 60s, and three of us have children in college. No one lives near this property. None of us can afford to buy the others out. I think this property needs some repairs and will need upkeep, plus there will be taxes to pay and insurance every year. There is no debt on the property.
How do we rectify this situation? I do not want to dump money into a property I don’t want, but I don’t want to force the sale either. I was thinking of starting with an appraisal and thorough inspection report so we can see what we’re dealing with. Also, what kind of inheritance tax will we have to pay if we get the property?
ANSWER: First of all, there's no inheritance tax to any of you. If your uncle's estate is large enough, it may pay some taxes, but this inheritance is not taxable income to you or your siblings.
Now, for the other issue(s). If it helps, this scenario plays out daily within families. One reason to do estate planning is to avoid these situations with potential to cause strong discord between family members.
The challenge is that five brothers and sisters will rarely agree on an action plan. Nor should they, because they all have different situations at home. For those needing money, the house represents a financial windfall. For others, it represents an added and welcome luxury - one-fifth of a vacation home in a desirable location. How each sibling looks at this is determined by their own family and circumstance.
Unfortunately, there isn't a good solution that's likely to satisfy everyone. (That's why a well-intentioned gift often goes bad.) The fairest solution is to sell the property and distribute one-fifth of the proceeds to each sibling. For ones wanting it, they can use the proceeds to buy something similar for their family. If one or two siblings want to keep this house, they should buy out the others (again, at fair market value). If the house has good value, this could be done easily though a mortgage loan and payments. Those one-fifth shares could serve as their down payment. If they can't afford that, then keeping the house is not really an option, is it? As a last resort (no pun intended), someone could file a lawsuit and let a judge decide. In all likelihood, however, the judge is going to dictate a sale of the property and distribution of the proceeds.
No matter what, the notion of an appraisal and inspection is solid. You may also want to research what insurance costs, taxes and other services will cost you on the property each year, and find out if there is a market to rent the property. Semi-concrete numbers are necessary for decision-making. You can't really discuss the challenge without knowing the amounts of money involved. I'd encourage you to seek an amiable solution. Your uncle is trying to do a nice thing and it would be a shame to let it come between you.