What to Do When You Inherit Your Parents' HouseSubmitted by Miller Financial Group | Red Oak Iowa Financial Advisor on October 3rd, 2019
What to Do When You Inherit Your Parents' House
By: Daniel S. Miller, CFP®
The largest wealth transfer in the history of the world is currently in process. It's estimated that over $68 trillion will change hands over the next 25 years. Baby Boomers are currently retiring at an estimated rate of 10,000 per day. And with that, many in this group will be passing substantial wealth on to the next generation at their demise. For some families, much of this wealth may be tied up in the family home, or homes. This brings up the question of what to do if you inherit your parents' property.
Some heirs will benefit from moving into their family's homestead. Many retirees may have no mortgage for the heirs to have to deal with. Therefore, those who inherit a home will likely have only the property taxes and insurance to pay if they wish to stay in the house. This can become a great benefit for those who might currently have a mortgage or a rent payment they are currently making each month. If you own a house and have some equity built up, opting to move into your parents' house may provide a great opportunity to sell your own home and access the equity. The money you'll access could allow you to make some improvements to your inherited property and bring it up to a more modern standard. Moving in can make more sense if you don't have to share the inheritance with any siblings. Additionally, if your parents owned a nicer or bigger home than you currently do, moving into your parents' home may allow you to move up in your standard of living without having to deal with real estate agents, increased debt and contract negotiations.
Rent It Out
Another way to benefit from inheriting your parents' house may come if you decide to rent it out. Becoming a landlord is not for everyone, but his may be a better option than moving in if you have siblings that will also inherit a share of the home. If there's no mortgage outstanding on the house, every dollar that you bring in over and above any property taxes, insurance and repairs is a dollar of passive income that you can use for any purpose you choose. You could save or invest the rental income. You could also use it to pay for everyday living expenses. If you have siblings, you may have to split up the income, but it is still passive income rolling in every month.
The third option for dealing with an inherited house is selling it. Once you inherit the house, if you plan to sell you'll want to be sure and maintain insurance on the property until you sign over the deed to another party. This will protect the value of the home in case a catastrophic event occurs. Of course, you'll have to come to an agreement with any siblings if they also inherited a share of the house. If the house has increased in value from the time your parents purchased it, you'll likely inherit the home on a stepped-up basis. This will allow you to avoid having to pay capital gains taxes on this increase. (You will need to consult with your own tax professional) If you decide to sell, you may want to consider making any updates that could improve the selling price. Outdated carpet and floral wallpaper do not tend to sell well in today's market.
Your parents likely worked hard to provide for you as a child. Hopefully they provided you a place to grow up that brings back many fond memories, the family home. As an heir, it will be your decision how you wish to handle this gift that was left to you. There is no one right answer on how you should proceed. Speaking with your financial and tax advisers, as well as your siblings, may be the best place to start.
Daniel S. Miller, CFP® is President of Miller Financial Group, Inc. with offices located in Bellevue, NE and Red Oak, IA. Dan and his team serve clients throughout the country as they prepare for the next stages of their financial lives. Dan is a published author of the book “Retirement Built to Last: Planning for When the Paychecks Stop” and has had articles published in the Wall Street Journal, Financial Advisors IQ, Successful farming and The Hill. He is also a dedicated husband, father, and advocate for the financial planning process and financial education.
Dan Miller, David Eads, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPIC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Services.