After a parent’s death, there will be grieving and mourning, but there are also some major responsibilities that come along with a death in the family if there is a house to sell, so here’s our helpful guide on how to sell your parents’ house after their death.
This how-to sell parents’ house guide will help you through the entire house selling process and help reduce the stress if you follow the process step-by-step:
FOR EASIER NAVIGATION:
- STEP # 1 – Know the Status of Your Parents’ Home
- STEP #2 – Identify the Executor of the Estate
- STEP #3 – Come to an Agreement with Your Siblings about Selling the House
- STEP #4 – Sort Your Parents’ Personal Finances
- STEP #5 – Review the Home’s Insurance Policy
- STEP #6 – Dispense Your Parents’ Personal Property
- STEP #7 – Hire an Experienced Agent
- STEP #8 – Prepare the House for Sale
- STEP #9 – Sell the House and Identify the Tax Implication
- STEP #10 – Reporting Sale Proceeds
- How Can Funeral Funds Help Me?
Step – Know The Status Of Your Parents’ Home
Check if there are money owed or unpaid mortgages, judgments, or liens on the home. The money owed needs to be paid in full before the lender will let you sell the house.
Life insurance can help pay all the owed amount. However, if the mortgage is too high, you may be able to negotiate with the lender to settle the account. The executor will need to track down all the creditors to arrange payment.
3 Ways of Inheriting a House From Your Parents
1 – PROBATE
Probate is a court-supervised process of dispensing your parents’ properties to designated beneficiaries. If your parents did not leave a will, you could not escape probate in most states.
The probate process varies from state to state, but expect this process to take from a few months to a year or two. Enlisting the help of a probate attorney to make the selling of your parents’ house process is a wise idea for most people.
Here are the 5 basic steps to probate:
- File a petition in court and give notice to all the heirs and beneficiaries
- Inventory all the property of the estate
- Give notice to all creditors of the estate
- Pay all debts and taxes from the estate’s account
- Transfer the legal title according to the will or the laws of intestate
The court will appoint an executor if you sell the house through probate. Your closest relative will often be assigned as the executor if there is no will.
When Probate Is Not Required
There are instances when probate is not required, and the title can be transferred to you sooner. Here are the different instances when probate is not necessary:
1. Your parents’ property is in a trust
A trust is when your parents designate a trustee to hold the property’s title for your interest as a beneficiary. If your parents’ property is in a trust, you can skip the probate, and the designated trustee can arrange the property transfer to you.
There are two ways to sell the property:
- The trustee can sell the property while it is in the trust and transfer the assets to you.
- The trustee transfers the title to you, and you can sell the property as you want.
2. Jointly owned property
Jointly owned property skip probate. Joint tenancy with the right of survivorship is one way of owning real property. Co-owners have an equal share of the property. If the co-owner dies, the surviving co-owner gets the share.
Jointly owned property involves minimal paperwork. In most cases, you will only need to file a certified copy of the co-owners death certificate, and the title will be easily transferred to you without going through probate.
3. Small estate affidavit
If your parent’s estate qualified as a small estate, you could generally accelerate the probate process. The general price of small estates is $150,000 or less in most states. If your parent’s left no will, but you are their representative, you can often submit a small estate affidavit. Submitting a small estate affidavit will accelerate probate.
2 – LIVING TRUST
Selling your parents’ house would be much easier if you inherited the property in a living trust.
A living trust is a document that streamlined the management of your parents’ properties. The living trust designates your parents as trustees, and you as a beneficiary. It is often the best way for multiple heirs to resolve property ownership issues after a death of a loved one.
If you inherit the house via a living trust, you can skip probate, avoid estate tax, and immediately sell the house.
3. TRANSFER ON DEATH DEED
Transfer on death deed is the easiest way to inherit your parents’ house. The deed allows you to inherit the house directly without probate.
The laws regarding transfer on death deeds vary by state. You can complete the deed in some states upon your parents’ death and avoid probate. In other states, your parents must bequeath the house to you in their will for the deed to be valid.
Step – Identify The Executor Of The Estate
You must identify all the heirs to your parents’ property and determine who is the designated executor or personal representative. The executor assigned by your parents or probate is authorized to make the house’s sale decisions.
The executor has the power to sell the house in the best interest of the entire estate. If your parents’ will allow the house’s sale, the executor can sell it without all the beneficiaries’ approval.
The executor is assigned to dispense the house and pay all debts owed when your parents pass away. It is their responsibility to notify all creditors and pay those debts from the proceeds of the sale.
Step – Come To An Agreement With Your Siblings About Selling The House
The split of the property between siblings can sometimes complicate the selling process. The problem ensues when one or more of the siblings want to keep the house. The siblings must come to a mutually agreeable resolution before selling the house.
Resolve all potential conflict points to save time, money, and stress in the selling process. If the conflict cannot be resolved in the family, you need to seek a professional mediator’s help.
The siblings must assign who is responsible for:
- Preparing the house for sale
- Figuring out how much the house is worth
- Funding the home sale expenses
- Giving the go-ahead to accept an offer
- Splitting the proceeds from the sale of the house
List each heir’s duties and agree on how to split the proceeds.
Can you force the sale of your parent’s house?
The estate executor can’t pass the house through probate if one sibling wants to keep the house and the others want to sell it. If one sibling wants to keep the house, he must negotiate a buyout with the other siblings.
If they can’t negotiate a buyout, take legal action. If the court decided to sell the house, the proceeds would be divided among the siblings. It is an expensive process and may cause a rift in the family relationship.
Step – Sort Your Parents’ Personal Finances
Collect all the financial documents necessary for the sale. These may include:
- Will – Your parents’ will can significantly make the distribution of the properties easier.
- Personal insurance documents – Check if there is insurance from an employer or privately purchased policy.
- Homeowner’s insurance policy – Check if the policy is up to date. See if you can convert the policy into a vacant home policy.
- Investment documents – Your parents may have stocks or bonds.
- Bank documents – Get accurate bank information.
- Receipts from bills – Freeze your parents’ credit cards and contact all creditors.
- Personal documents – Keep the birth certificate, marriage contract, and other personal documents. You can also keep journals and poetry for sentimental reasons.
After gathering pertinent documents, it is wise to shred everything containing personal information to avoid identity theft.
Do some research to find out if there’s an existing mortgage and who the creditors are. Get access to your parent’s financial accounts. Check how the bills are being paid. Access the bills related to house maintenance. Make sure there’s enough to cover the bills until the house sells.
Submit death certificate to creditors
Notify the creditors of your parents’ death by submitting a death certificate. Submit death certificates to the social security administration, credit bureaus, and creditors.
Here’s a list of accounts you need to keep:
- Personal and property tax records
- Mortgage payment records
- Reverse mortgage statements
- Home Equity Line of Credit
- Income and retirement accounts (Checking, savings accounts, CDs, 401K, etc.)
- Insurance policies
- Credit card statements
- Medical bills
- Communication services (Landline, cell phone, cable TV, internet service, etc.)
- Utilities (water, electricity, sanitation, etc.)
- Homeowners association payment records
- Household service expense records (Housekeeper, gardener, home healthcare, etc.)
You can close these accounts and stop making payments once the house sells. Until then, you must pay maintenance, property insurance, and utility expenses.
Run a title search to check liens or judgments attached to the home. Check if there are taxes in arrears, reverse mortgages, or home equity credits. Running a full title search will help you address these financial issues.
Step – Review The Home’s Insurance Policy
Home insurance is an essential aspect of the property you must not take for granted. Most home insurance policies only allow 30 days of vacancy before it becomes invalid.
If your parents’ have home insurance, contact the insurance company right away to find out if you can obtain a vacant home policy until you sell the house.
A vacant home has a higher incidence of break-ins and vandalism. Some people are breaking into the house to steal appliances or copper plumbing or wiring. Most home insurance carriers will not pay for damages unless you have vacant home insurance in place.
If your parents’ house is vacant until it sells, change the home insurance policy to vacant home insurance covering unoccupied properties waiting to be sold.
Step – Dispense Your Parents’ Personal Property
Once you have sorted out the legal and financial issues, the next step is to go through and dispose of your parents’ personal property before you can list the house for sale.
Before decluttering the house, take inventory of the property for the courts before distributing anything. The probate court may need to be involved in dispensing your parents’ properties.
If you are the executor, dispense all personal property to heirs. If there is no designated executor, the heirs can decide what happens to the house’s contents.
Dispensing properties can be tricky if multiple heirs want the same thing. If you can’t reach a resolution, getting a mediator to handle your parent’s personal property is best.
Step – Hire An Experienced Agent
One way of avoiding disputes and needing a professional mediator is to hire an experienced agent selling inherited property and probate.
When hiring an agent, make sure that the agent resides in the same city where your parents’ house is located. An out-of-state agent may not be licensed to sell real estate properties in your parents’ home state. They may not be able to access the local MLS and come up with accurate comps when pricing the house.
Hiring an experienced agent from the start of the sale is a wise move. They can assist you in every step, from finding legal guidance to making the necessary improvements to maximize market value.
Step – Prepare The House For Sale
Seek the help of an experienced agent for advice regarding what needs to be changed or repaired before putting your parents’ house on the market. You may need to clear out personal belongings, declutter, and de-personalize the rooms and common areas.
Here are some tips to prepare the house for sale:
- Clean out personal belongings
- Hold a yard sale
- Clear out the house with an estate sale
To get the best price, you may need to make some changes to the following:
- Old furniture
- Old window coverings
- Old wallpaper
- Carpeting or flooring
- Hardwood floors
- Old paint
- Pet stains and other damage
You may need to thoroughly clean the house before making any changes. If you cannot do the work yourself, ask your agent to refer you to someone who will do the job for you.
Decide how you will sell the house.
Sell “As Is”
Selling your parents’ house as-is not a bad idea. You may get a little less for the house, but this may help you avoid a capital gains tax.
Consider a pre-listing inspection.
Get a pre-listing inspection if you are not sure of the condition of your parents’ house. However, you may need to disclose any issue uncovered during the inspection.
When you are ready to put the house on sale, ask your agent to give you a comparative market analysis (CMA). The comps will estimate your parents’ house’s fair market value based on the prices of recently sold homes in the area.
Once you have prepared the house for buyers, you can list it through your Realtor. If you made the house desirable for buyers, you could sell it for a fair market price.
Step – Sell The House And Identify The Tax Implication
During the selling process, remember that home maintenance never stops. Continue paying utilities and make a sure potential issue like plumbing or storm damage is taken care of. Lawn maintenance is also important; keep the lawn mowed regularly to avoid fines from the homeowner’s association.
Make sure the house is secured. Change the locks and mail delivery system. Having someone to check on the house frequently will save thousands in damages and theft.
3 Ways to Sell Your Parents’ House
1. Sell with a real estate agent
Choose an experienced real estate agent to sell your house. Selling with an agent will often help you get the best price for your parents’ house. The real estate agent can help you set the asking price, market the house, and complete the sale.
2. Sell to a real estate investor
Real estate investors or homebuying companies will buy the house as is or regardless of its condition. When you sell to a real estate investor, you will receive cash and close the sale. Shop for a well-funded real estate investor to have a good price.
Do your homework and research for a highly rated homebuying company. Deal with a company with a proven track record before you accept any bid.
3. For sale by owner
You can also sell your parents’ house yourself. You can see for sale by owner signs anywhere. If you choose this option, you will set the asking price, market the house, show the house to prospects, and negotiate the buyer’s final price.
SELLING THE HOUSE WHILE IN PROBATE
Some tips on how to sell parents’ houses after their death. Before the probate process begins, you need an accurate probate appraisal. A professional real estate appraiser will charge a fee for the appraisal. It may cost around $250 to $450, depending on the house’s location, size, and other factors.
The valuation will reflect the property’s value at the time of your parents’ death. Assets and liabilities factor into the value. You must pay all the liabilities before the court releases any assets for distribution.
THE EXECUTOR OF THE WILL’S POWER TO SELL THE PROPERTY
The estate executor has the power to sell the house without court confirmation unless the will disallow the sale. But if the will allows it, the executor can sell the house without all beneficiaries’ approval.
The executor can decide on the asking price, hire a real estate agent, or sell the property to an investor. They can also negotiate the price and close the sale.
The executor is authorized to make decisions based on the beneficiaries’ best interests and the entire estate. The probate prohibits them from giving preferential treatment to any of the beneficiaries.
CAN THE EXECUTOR SELL THE HOUSE BEFORE PROBATE IS GRANTED?
If your parents’ house needs to go through probate, the executor cannot sell the house before probate is granted. However, the house can be sold if the estate has a will with a designated executor.
Don’t sell the house before probate because the court needs to approve the will’s named executor. There are times when the court disqualifies the designated executor. Additionally, the house needs a probate appraisal before selling.
The executor can sell the house after probate is granted but before it is settled. The sales process can begin and the transaction completed except for naming the buyer in the deed. The title company will only transfer the title after the probate is settled.
The probate process can take a few months to several years to complete.
CAN AN ESTATE ADMINISTRATOR SELL THE HOUSE WITHOUT THE BENEFICIARIES’ APPROVAL?
Since the estate administrator does not have a will to follow, they can only distribute the estate’s assets to the heirs. They can sell the house as they see fit and distribute the assets to the rightful heirs without showing preference.
In case there is no will, the administrator can legally ignore the wishes of the beneficiaries and sell the house according to state laws.
HOW LONG DOES A PROBATE SALE TAKE?
An estate can stay in probate from six months to several years. If your parents’ house is part of an intestate estate, you cannot speed up the process. However, if you are a beneficiary and executor of an estate with a will, the sales process can be quicker.
The quickest way to sell the house is by selling to a real estate investor in a private sale. The investor will buy your parents’ house “as is.” You don’t need to settle debts or conduct repairs to the house. The real estate investor will take care of these problems after selling the property. The repairs and debts will be included in the cash offer you’ll get for the house.
TAX IMPLICATIONS WHEN SELLING YOUR PARENTS’ HOUSE
The government expects a part of the income you make or the proceeds from your parents’ house sale. Potential tax implication includes estate taxes and capital gains tax. Seek the guidance of a lawyer and a tax professional to review the taxes owed on the house.
Let’s take a look at the taxes involved in selling your parents’ house:
Inheritance And Estate Taxes
Inheritance and estate taxes are similar taxes imposed on the sale of inherited property. However, they differ in how they get paid and to who.
An estate tax is a federal tax paid against the total value of your parents’ property. It must be assessed and paid before distributing the proceeds to the heirs.
Inheritance tax is a state tax; the heirs must pay the state on the real property proceeds once the estate is settled.
Capital Gains Tax
This tax applies to the difference between your parents’ house’s purchase price and the final sold price. The money you receive from the sale is taxable through the capital gains tax code.
Let’s say your parents bought the house for $100,000 decades ago. Now the house is worth $300,000. If you sell the home today at $330,000, you will need to pay $30,000 capital gains tax. However, if you sell it at $300,000, you don’t need to pay the capital gains tax.
Home Sale Tax Exclusion
You can get tax exclusion when you sell a property you’ve lived in for at least two years. This exclusion is often $250,000 for a single homeowner and $500,000 for married couples if they file jointly. You wouldn’t get this exclusion if you did not live in the house for at least two years.
Stepped-up Tax Basis
A stepped-up tax basis works this way. If your parents bought the house for $100,000 decades ago, they remodeled it for $50,000. The home would be valued at $150,000 then. But when they died, the property was valued at $450,000, and you spent $30,000 to improve the house. When you list the house for sale, you can use the $480,000 as your basis. If you sell the home for $500,000, you will need to pay $20,000 for capital gains tax.
Step 10 – Reporting Sale Proceeds
The final step is selling their parents’ house after their death. When you sell your parents’ house, you are required to file a report to the IRS. You will need to declare the sale proceeds as taxable income.
The taxable amount depends on the stepped-up basis, calculated from the house’s current market value and other additional expenses for repairs.
Check this page from the IRS for instructions on what forms to use.
Remember, you need to report the sale to the IRS even if you don’t have to pay taxes on the sale.
We hope this how-to-sell parents’ house after their death guide will help you through the entire process of selling a house after your parents’ death.
How Can Funeral Funds Help Me?
One of the most important aspects of estate planning is ensuring that your loved ones are taken care of financially in the event of your death. Life insurance can play a crucial role in this, as it can provide a lump sum payout to your beneficiaries that can be used to cover expenses such as funeral costs, outstanding debts, or everyday living costs.
At Funeral Funds, we understand the importance of life insurance in estate planning, and we can help you to find a policy that meets your needs and budget.
We work with various insurance carriers, so we can shop around for the best rate on your behalf. We can also assist you in securing coverage if you have a health history or pre-existing medical condition.
To get started, simply fill out our quote form or call us at (888) 862-9456, and we will be happy to help you.