If you’ve suddenly inherited a house, you may not be prepared for the questions and issues that can arise. And if you make the wrong decisions, you will likely encounter financial, emotional, and family problems before long.
Forewarned is forearmed, they say, so here’s some of what can go wrong when you inherit a house in Missouri.
What Can Go Wrong When You Inherit a House in Missouri
You May Owe More Taxes than Anticipated
Most people don’t have to worry about estate tax because of the very high exemption (in the millions), and the estate tax was even temporarily suspended on 2010. But also mostly suspended in 2010 was the step-up provision. So in considering what can go wrong when you inherit a house in Missouri and when you intend to sell it, you need to consider the stepped-up capital gains situation.
The step-up provides that you pay capital gains taxes only on the gains above the fair market value at the date of the decedent’s death. It has nothing to with the price the decedent paid for the house – unless the step-up falls in one of the years when it was changed. In that case, you may owe a lot more in taxes than you bargained for.
We are not experts on taxes, but a quick call to your accountant can answer quite a few questions.
The Mortgage May Be Bigger than You Thought
Generally in the past, when an elderly parent or relative passed, the mortgage on their house was paid off. These days, though, it’s common for elderly people to take out a reverse mortgage on their home to supplement insufficient retirement funds.
You need to be aware, then, that a reverse mortgage cannot be assumed by heirs. And in the case of a standard mortgage, you can assume the mortgage only if you live in the house yourself. So if you intend to rent the house, you may have to refinance it in your own name.
We have had a few heirs that find there is more owed on the property that they can sell it for, so instead of going through all the hassles, they just let the bank foreclose. This is a very viable option and will not affect your credit, only the credit of the person who has passed.
You May Have to Go through Probate
The need for probate is going to depend on the advanced planning of the person who has passed. Quite often the property will pass to the spouse or single child or co-owner, without much work, giving that person the ability to sell the home. Other times, the property is going to have to go through a complete probate process that while not overly hard to deal with does cost money and time.
If you are unsure, we suggest consulting with a local probate attorney. And do keep in mind that even if the estate must go through the probate process, sometimes you can sell the house mid-process and let the money sit in the bank through the process. And maintaining a bank account is way less expensive and safer than maintaining a vacant house.
The House May Need Repairs and Upgrades
With respect to what can go wrong when you inherit a house in Missouri, this one may be the most costly. Most of the time, people inherit a house from a deceased elderly parent or very close relative. Besides not having the physical ability to perform maintenance and upgrades, many elderly people don’t have the money for it either. And if they do, they may simply choose not to because they know they won’t be living in the house very many more years.
If you plan to live in the inherited house, this may not be a huge concern. But if you intend to rent it or sell it, you’ll have to make repairs to make it presentable and upgrades to bring it up to code and meet other legal and insurance requirements. Installing a new HVAC system or re-wiring the house will involve a big chunk of money.
You May Have Problems with Relatives and Joint Heirs
But what if you’re not the only heir? That can be a problem. Suppose you and your siblings inherited the house jointly. If you want to sell it, your brother may want to rent it, and your other brother, to live in it himself. You can see what a powder keg waiting for a spark this is.
We often get called from one person who has inherited with others who want to keep the house but will not step up financially to keep the house in good repair, taxes paid, and more. We have even had to put a portion of the proceeds into escrow for one heir as she didn’t trust her siblings to pay her after closing
In most states, joint heirs of a home are considered tenants in common, and one heir can force a sale if it comes to that. The process, however, is expensive, and the emotional and familial consequences are likely to be highly unpleasant.
So what can go wrong when you inherit a house in Missouri? Quite a lot, actually, if you’re not up to speed on tax laws, mortgages, and upgrade issues. It is best to contact a qualified professional to help head off these issues quickly.