A parent leaves the family home to you and your siblings. It may sound straightforward, but inheriting a house together can quickly raise financial, legal and emotional questions. Unlike cash, a home isn’t easily divided. One sibling may want to sell, while another hopes to keep the property in the family. What happens next can depend on the estate plan, how the property was titled and state law.
And for many families, the home could be one of the biggest assets they’ll have to make those decisions about. A Morning Consult survey commissioned by Kiplinger for our Trillion Dollar Talk campaign found that 33% of parents say real estate, including their home, will make up the greatest share of their children’s inheritance. Yet just 24% of adult children expect real estate to account for the largest share of what they inherit. That gap is one reason it can help to talk through expectations before an inheritance becomes an immediate decision.
If you inherit a home with siblings or other family members, understanding your ownership rights, costs and options can help you decide what to do with the property, and hopefully avoid unnecessary conflict along the way.
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What does it mean to inherit a house with someone else?
If a home is left to multiple beneficiaries, you aren’t necessarily inheriting your own physical portion of the property. Instead, you may each receive an ownership interest in the home.
For example, if a parent leaves a home equally to three children, each child may inherit a one-third ownership interest in the property. The exact ownership arrangement will depend on the estate plan, deed and applicable state law.
You also might not be able to take control of the property immediately. If the home is part of an estate that must go through probate, the executor or personal representative may need to handle the property while the estate is being administered. A home transferred through a trust or certain other arrangements may be handled differently.
Before deciding what to do with the house, find out exactly what you’re inheriting and what comes with it. That includes determining whether there’s an outstanding mortgage, property tax bill, lien or other obligation connected to the home.
The estate’s executor or attorney can help clarify who owns the property, when beneficiaries receive control and whether any debts or other issues need to be resolved first.
Your first decision: Keep, sell or buy someone out
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Once ownership is clear, the heirs generally need to decide what they want to do with the property. There are three common options:
- Sell the home: If everyone agrees, the heirs can sell the property and divide the net proceeds based on their respective ownership interests. This may be the simplest option when no one wants the house or when beneficiaries would rather receive cash.
- Have one heir keep it: Perhaps one sibling wants to live in the home or has a stronger attachment to it. That person could potentially buy out the other beneficiaries’ ownership interests. Getting an independent appraisal can establish a fair value for the property, and the heir keeping the house may need cash or financing to complete the buyout and potentially refinance an existing mortgage.
- Keep the property together: You could also continue owning the home jointly. Some families keep an inherited house as a vacation property, rental or shared family home. If you go this route, consider creating a written agreement covering how the property can be used, how expenses will be divided and what happens if someone eventually wants out.
The situation becomes more complicated when the heirs don’t agree. One co-owner can’t simply sell the entire property without the involvement of the others. However, depending on state law and the ownership structure, a co-owner may be able to ask a court for a partition.
Depending on state law and the circumstances, a partition proceeding can result in a court-ordered sale of the property, with the proceeds divided among the owners according to their ownership interests.
Because a court proceeding can add time, expense and tension, it’s usually worth exploring a voluntary sale, buyout or another negotiated solution first.
Decide who’s paying for the house in the meantime
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Even if you eventually decide to sell, you could own the house for months while the estate is settled, belongings are removed, repairs are completed and the property is listed.
During that time, the bills don’t disappear. Depending on the property, heirs may have to account for:
Try to decide early who will pay each expense and keep good records. If one sibling pays $5,000 for necessary repairs, for example, the heirs should agree on whether that person will be reimbursed from the sale proceeds before the remaining money is divided.
It’s also important to discuss what happens if one heir lives in the home. Will that person pay rent to the other owners? Will they cover the utilities or a larger percentage of the mortgage, taxes and maintenance instead?
There’s no single arrangement that works for every family, but putting your agreement in writing can reduce misunderstandings later.
Understand the tax implications before you sell
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Simply receiving an inheritance generally doesn’t mean you’ll owe federal income tax on the value of what you inherit. However, selling inherited property can have tax consequences.
One important concept to understand is the stepped-up basis. In most cases, the tax basis of inherited property is adjusted to its fair market value as of the date of the owner’s death.
Suppose a parent purchased a home for $150,000, and it’s worth $400,000 when they die. The heirs’ tax basis would generally be $400,000, rather than the parent’s original $150,000 purchase price. If the heirs later sell the home for more than their adjusted basis, they could owe capital gains tax on the difference.
That distinction can make a major difference in the tax bill, and it’s one reason getting a reliable valuation of the property can be important.
When several people inherit the property, each person’s ownership interest also matters when determining their portion of the proceeds and potential gain. State estate or inheritance taxes may create additional considerations depending on where the deceased person lived and other circumstances.
That potential tax bill is also an area where parents and their children may have different expectations. The survey found that 34% of adult children expect to pay taxes on an inheritance, compared with just 20% of parents who expect their children to owe taxes. Understanding how inherited property is taxed can help heirs avoid surprises when they eventually decide what to do with the home.
Because the rules vary based on the estate and how the property is eventually handled, consider talking with a tax professional before completing a buyout or sale.
What if you and the other heirs can’t agree?
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A house can be one of the most emotionally complicated assets to inherit. To one sibling, it’s a valuable property that could provide money for a down payment, retirement or other financial goals. To another, it’s the childhood home where the family spent decades making memories. Those feelings can make it difficult to reach a decision based solely on dollars and cents.
Those competing priorities can also create tension between siblings. According to Kiplinger’s Trillion Dollar Talk survey, 33% of adult children with siblings think an inheritance is likely to cause conflict between them and their siblings.
Different expectations about what constitutes a fair inheritance can add to that tension. While 71% of parents with multiple children intend to divide their estate equally, only 47% of adult children expect their parents to divide their assets equally.
If you’re trying to decide what to do with a home, start by getting an independent appraisal. Having a neutral estimate of the property’s value gives everyone the same number to work from, whether you’re considering a sale or a sibling buyout.
It can also help to separate sentimental value from financial value. Wanting to preserve a family home is understandable, but the person who wants to keep it still needs to consider whether they can afford the mortgage, taxes, insurance, upkeep and potentially buying out the other heirs.
If conversations stall, consider bringing in an estate attorney, mediator or financial professional who can help everyone evaluate the options without being as emotionally connected to the property.
Court action may be an option of last resort. Depending on state law, an owner may be able to pursue a partition action to end the co-ownership, which can lead to a court-ordered sale if the property can’t reasonably be divided. But litigation can be expensive and potentially damage family relationships long after the house is gone.
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Before you make a decision about an inherited home
There’s no universal right answer for what to do with an inherited house. Selling could make sense for one family, while another may be perfectly comfortable keeping the property together for years.
Before making a decision:
- Find out exactly who owns what percentage of the property.
- Get an independent appraisal.
- Determine whether there’s a mortgage, lien or other debt attached to the home.
- Calculate the ongoing cost of taxes, insurance, maintenance and other expenses.
- Discuss what each heir actually wants to do with the property.
- Put agreements about expenses and use of the home in writing.
- Talk with an estate attorney and/or tax professional before completing a buyout or sale.
Ideally, some of these conversations can happen before there’s a house to inherit. The Trillion Dollar Talk survey suggests that many adult children are looking for more clarity about their parents’ plans: When asked what they would most like to know about their inheritance, 11% specifically wanted to know how it would be divided or who would get what.
A conversation today won’t eliminate every decision heirs will eventually have to make. But knowing whether a parent plans to leave a house to one child, several children or sell it through the estate can give everyone more time to understand what that inheritance could actually mean.
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