What You Will Read In This Article
After a parent dies, the last thing you want to think about among the grief and stress is all of the legal wranglings you have to do to get their estate settled. A significant portion of this is selling your parent’s property. Many factors play into this piece of the puzzle, including preparing to house for the market and considering any taxes you might incur with the process.
Selling your deceased parent’s house can be an emotional experience, especially if you have personal memories tied up in the property. It can also be hard to navigate if your loved one didn’t have a will. While you can hire a professional estate attorney to help you go through the process, you’ll still need to understand the steps you’ll have to take to finalize the sale.
Here we will outline the steps to help you sell a house after the death of a parent.
Do You Want To Sell A Home And Save On Commissions?
Did you know that we can help you save a lot of money when selling your house? Money that you can put towards moving, buying a new house, paying off debt, a much needed vacation or anything else you want. ISoldMyHouse.com has 3 ways for you to sell your house and NOT pay high commissions.
- Sell It Yourself With Our Flat Fee MLS Listings
- Sell With Top Local Agents With Negotiated Discounts on Commissions
- Sell To A Pre-Qualified Cash Buyer
What is an Estate Sale?
You might think of an estate sale as a yard sale or auction held after a person passes away. After loved ones go through the house to put aside the belongings they want to keep, they will price the remaining items. The house is open to the public, who can walk through and buy items they want.
This type of estate sale is a great way to clear the house of the deceased person’s belongings. You can use the profits from this estate sale to pay off any debt or taxes the deceased person left behind.
On the other hand, real estate agents define an estate sale as selling a deceased person’s property on behalf of the living heirs. This can include the items inside the house along with the house itself. Prices of homes sold in probate estate sales can be lower than market value. Some houses sold in estate sales will go to auction, which means the price could be lower or higher than the area’s typical sale prices.
Both definitions of an estate sale are correct, though they are used differently in various parts of the country. Both definitions of an estate sale are also applicable when you’re trying to sell your parent’s home after they pass away.
Steps To Sell A Home After the Passing of a Relative
There are a few required steps to take to sell a house after the death of a parent. These steps will help make the process as creaseless as possible in an already troubling time.
1. Figure Out Estate Status In Probate
Just because you think you are the heir to your parent’s property doesn’t mean you’re able to take over their property as soon as they pass away. There are three ways your parents can leave you their house:
- Through the probate process
- Via a living trust
- By transfer on a death deed
Whether your parents have a will or not, the property you’re in line to inherit will have to go through the probate process. This means a court will oversee the distribution of your parent’s entire estate, preventing you from even cleaning out their home before the court identifies the executor of the estate, even if your parents named you as executor in their will.
The probate process going to court is standard and shouldn’t alarm you—the court helps to make sure your parent’s debts will be repaid before anything else happens. The probate process can take anywhere from a few months to a couple of years, depending on your state laws. Your state might also rule that the courts will have a say in how the property is sold, so hiring a probate attorney can help you navigate these steps.
A living trust is a document your parents must set up before they die, where they are the trustees, and you are named as the beneficiary. This setup might ease any disagreements between remaining heirs, as the living trust allows the parent to determine who will be in charge of dividing out their estate.
When you inherit a house via a living trust, you might be able to avoid estate taxes. As a bonus, you’ll be able to sell the house immediately because you won’t have to go to court to have your parent’s assets distributed.
If your parents set up a transfer of their property to you via a death deed, also called a beneficiary deed, you will be able to take ownership immediately, without the need for probate court. With a death deed transfer, you can start clearing out your parent’s home and getting it ready for sale as soon as you’re ready.
A death deed is not an acceptable replacement for a will and does not hold merit in every state, so be sure to check on your state laws if you’re in a beneficiary deed situation.
2. Continue To Pay the Bills
Just because the owner of the home has passed away doesn’t mean all bills will cease. As long as the property is using electricity, you’ll have to pay utilities. You’ll want to keep the property insured and pay for any services like landscaping or cleaning that your parents might have used. If you won’t need these services as you prepare to sell the house, ensure there is no balance remaining, and inform the service providers about the change.
Along with paying bills, you’ll want to contact any creditors and financial institutions such as traditional mortgage or reverse mortgage lenders to let them know your parents have passed away. You’ll have to settle any debts that may be outstanding. The state might have laws about what debts absolutely have to be paid—some are low on the list of priorities and won’t need to be paid unless there is profit after the estate is settled.
3. Gather All Documents
Paperwork is a necessary evil when it comes to settling your parent’s estate. You’ll have to find all of their important documents, such as:
If they have one, this will help streamline the entire process of settling their estate and selling the house.
If you can find receipts of bill payments, you’ll know what services to stop and what you need to continue paying until the house sells.
Investment and Financial Documents
If your loved one had stocks, bonds, or other financial investments, you’ll need to contact the providers so you can close the accounts or transfer ownership. You’ll also need to find information for all of their open bank accounts so you can transfer the money or ownership once you get to that stage of the process.
Your parents may have had insurance on themselves or their property, and you’ll need to find these documents so you can handle them accordingly. If they had personal insurance, you’ll have to contact the providers and find out what needs to be done to cancel the policy.
You’ll also want to find their home insurance policy because you’ll want to keep paying this until the house sells. You will still need to contact the insurance company to alert them about your parent’s death and see what steps might need to be taken to adapt the policy in the meantime.
After you find all the documents you need, you might want to go through personal documents and keep some for sentimental purposes. Anything you’re not keeping should be shredded or burned because names, social security numbers, or other identifying information will make it easier for someone to steal your loved one’s identity.
4. Home Security
If you’re not living in your parent’s home while you clean it and prepare it for sale, you’ll want to be very cautious about home security. The house will be sitting empty, and it might be a public record in your state that the owner’s death has been reported. This makes the house a perfect target for criminals and vandals. Keeping the house insurance policy active will help protect this major asset, but you might want to consider taking additional steps towards home safety when selling.
You don’t know who has keys to your parent’s home—they might have loaned them to neighbors, other family members, or service providers and forgotten to get them back. As the executor of the estate, you want to be sure that you are the only person who has access to the property. Change the locks as soon as you’re able, and keep track of any key you might loan out.
Change Mail Delivery
You want to make sure that you’re getting all mail that would have been delivered to your loved one. You might realize there are more people to contact or accounts to close based on what types of correspondence or bills they get in the mail. You can also contact companies who send junk or catalogs to stop that mail from being delivered.
Even if you go to your parent’s house every day to check the mail, it’s still a better idea to have it re-routed to your own residence. People might watch the house, knowing it’s empty, and rifle through the mail as soon as it’s delivered. You don’t want any important documents to be stolen from the mailbox.
Home Security System
Consider installing a home security system at your parent’s house. You can get a basic system that will call the authorities if someone tries to break in, just to have peace of mind. Or you can step up the service and get cameras installed. With this option, you can often monitor the cameras from your smartphone or computer to keep a closer eye on the property.
Though a security system will be an added expense, it will guarantee your parent’s property is secure, and it will only help resale value to have an alarm system already installed.
5. Update Insurance
You know that it’s important to keep paying home insurance to keep the property protected, but you need to make sure that you update all of the insurance information. Once you tell the insurance company that your parent has passed away, they’ll need to update the policy. If you plan to live in the home, update the policy with your information.
If you don’t plan to live on the property, you need to be honest with the insurance company and tell them it won’t be owner-occupied. If the property isn’t lived in, the premium might be higher because no one will be in the house to notice a leak or other problem. If you don’t tell the insurance company that no one will live in the house, you risk them not paying out if something is damaged on the property.
6. Remove Personal Items in the Home
You’ve already gone through the house to find all of the important documents. You’ve destroyed anything with personal information to prevent identity theft. Now you need to remove all of your parent’s personal items from their home. This process can take a long time, so you might want to do it in steps or by room.
Part of this is because you need to sort it out and assess what you or any other family members might want to keep for sentimental reasons. You can also divide out some things that you think are valuable and will want to sell later.
Mostly, you want to remove personal items so you can get the home ready to sell. Removing personal items will make the house look staged, which means it’s closer to being ready for potential buyers to come tour.
7. Get the Home Ready to Sell
All of the previous steps get you to the point where you’re finally ready to get your parent’s home ready for sale. This part is similar to if you were selling your own home, though your parent’s house may look more dated. Beyond clearing personal items to make the house ready to stage, you might need to make some minor updates.
If you’re handy around the house or simply want a project to keep your mind off of your grief, you can do some of the home improvements yourself. If you’d rather get everything off of your plate, you could attempt to sell the house as-is to a real estate investor.
Real estate investors factor in the renovations they’ll have to do to get the home in good condition, so you probably won’t make a profit, but the work will be out of your hands. Getting the house sold might be more important to your mental health, so it’s worth considering this option.
Contacting a real estate agent at this point will help you know what you need to do to get your parent’s home ready to sell. They can tell you if you need to upgrade the carpet, upgrade lighting fixtures, or give everything a fresh coat of paint. If you want to make improvements but don’t want to use a real estate agent, look at other homes for sale in the area and see how they look, and decide if you can make similar changes to your parent’s house.We Negotiated Discounts With Great Agents. Find One In Your Area.
8. Real Estate Agent or FSBO?
If you decide to hire a real estate agent to help sell the home, make sure they are a good agent that knows that they’ll be selling the home of a deceased person. The sale won’t be too different than a typical home sale, but some taxes, finances, and other details will come into consideration, and it would help to have an agent who has worked with this situation before.
You can sell your parent’s house on your own, but make sure you’re prepared to look at it as a business transaction. So much emotion is involved with wrapping up your parent’s lives that it’s affecting you even if you think you have it in check. Being so involved in selling their home might be the straw that breaks the camel’s back.
If you’re sure you want to sell your parent’s house on your own, you can list it for sale as For Sale By Owner (FSBO). You won’t have to pay a realtor any fees with this option, but all of the work will be solely on you. You’ll have to market the house, schedule showings, conduct tours, and handle the offers on your own. This might be too much stress on top of everything else you have to do.
Before you sell your parent’s house, you’ll also need to do your research. Check out homes for sale in the neighborhood and see what they went for. Make sure the property’s aesthetic and square footage are comparable. You don’t want to price the house too high and have it sit on the market for a long time. You also don’t want to undervalue the home and miss out on the money you may need to close out your parent’s estate.
9. Do You Have To Disclose The Death?
Disclosing a death that happened in a home or on a property varies from state to state, so you’ll want to check with state regulations first. If you’re using a realtor, they’ll know the laws for your state. In some cases, you don’t have to disclose the information in the house listing or upfront, but you have to be honest if a potential buyer asks.
Some states have a time limit on this information, such as if the death occurred in the last three years. Some states say you only need to disclose the death if it was the result of a violent crime, and your elderly parent peacefully passing away will not need to be revealed. Be sure to follow your state’s guidelines to prevent ruining a sale.We Negotiated Discounts With Great Agents. Find One In Your Area.
On top of all the stress of dealing with a loved one’s death, you’ll also have to consider the tax implications that come along with selling your parent’s house. Different taxes will apply in different situations, and not all will affect you, but it’s important to have basic knowledge of all types of taxes.
Estate taxes are only applicable if the amount exceeds the estate tax exemption, which is over eleven million as of 2020. Commonly the estate will pay the bill to the IRS, so you won’t have to pay this tax just because you inherited the home.
Inheritance taxes, on the other hand, do apply to the person who inherits the property. Only certain states charge an inheritance tax, so you’ll have to check state tax laws to see if this applies to you. If you don’t have enough money to pay the inheritance tax, you can sell your parent’s home and use that money to pay the tax.
Capital Gains Taxes
Profits from selling a house are classified as a capital gain. This rate is lowered after you own the property for a year or more. When you sell your parent’s home, any profits you make will be taxed at the capital gain rate, but inherited properties are taxed at a lower long-term capital gain rate regardless of how long the home was owned. This means you won’t have to hold onto your parent’s house for a longer period of time just because you want to pay fewer taxes.
When selling an inherited property, the IRS usually sets the base price at the house’s fair market value. That means even if your parents bought their house for $100,000 and it is now worth $200,000, you will not be taxed for that $100,000 increase. You will only be taxed for any amount over $200,000 that you make upon selling the house.
If you lived in your parent’s home in between inheriting it and selling it, you could be exempt from paying any capital gains taxes on the house. This is called the primary residence exclusion and allows you to write off $250,000 in capital gains taxes if you live in your parent’s home for two years before selling it.
It is easy to forget that you’ll have to file income taxes for your deceased parent to cover their last year of life. Look back over their past tax documents to see what form they used for filing. File their last year of taxes just as you would if they were still alive, listing any income and deductions. If your parent hasn’t filed taxes for previous years, you will also have to do that before their estate is settled.
If your deceased parent owes taxes, you will have to pay them from the estate. You will also be able to get any refund due to your parent by submitting a request that the funds are paid to you. You can hire a firm or tax attorney to help you with this process if you don’t feel comfortable handling it on your own.
Though losing a parent is a stressful and emotional life event, some things can be made a little easier with the proper knowledge. This guide will help you easily navigate the process of selling a house after the death of a parent, so as not to add too much additional stress in a time of grief.