Connect with us

Legal

10 Things You Didn’t Know About Inheriting Property

inheriting a home

Initially, inheriting property may seem like a stroke of luck, akin to winning a prize. It’s difficult to fathom that it could eventually become a significant burden. However, the reality is that inheriting a home can potentially become a financial hardship.

Transferring property to beneficiaries who are not surviving spouses can be pretty lengthy. This can be particularly challenging when you are already grappling with the loss of a loved one. It becomes even more arduous if you rely on the inheritance to alleviate your financial situation.

Various costs come into play, such as legal fees and inheritance tax. Additionally, if the inherited home has an existing mortgage or requires maintenance, expect further expenses.

For some individuals, keeping the inherited property may not be financially feasible. As a result, they may choose to sell it, which could potentially lead to incurring a capital gains tax.

This article examines the potential financial drain you must consider when you inherit property.

Let’s look at ten things that affect inherited property. Understanding each is essential to deciding if your inheritance is an asset or liability.

Is the Will Valid?

The first step is determining whether the deceased person has a valid will.

Australian law provides that anyone is free to make a will. No reserved part of the estate is required to go to a specific person. Yet, someone may challenge a choice if the deceased is morally obligated to provide for them.

When someone dies without a will, specific rules apply to the estate. It depends if there is a spouse, common-law spouse, same-sex partner, or descendants.

Extended family is eligible when no immediate family exists. If there are no relatives, then the estate goes to the Government. For example, in Australia, unclaimed inheritance goes to the Australian State Government’s common fund.

Australian Inheritance Laws

When you inherit in Australia, the location of the property determines jurisdiction. At the time of the property owner’s death, the local Australian laws apply. Religion, residence, and nationality of the deceased or beneficiaries don’t apply.

The law recognizes foreign marriages. But, it doesn’t matter if the couple married in another jurisdiction. If there are disputes over the inherited property, the matter goes to the State Court. The estate’s value determines which court hears the argument.

Advertisement

Taxes

Australian citizens don’t have to pay death duties or inheritance taxes.

In 1979, all the states in Australia ended the inheritance tax known as death duties. State and territory laws regulate wills and inheritance.

There are some federal taxes. The assets you get from an estate may be taxed under the Capital Gains Tax.

A Capital Gains Tax is due as part of your income tax. A Capital Gain is an increase in the value of an investment or real estate that makes it more valuable than the purchase price.

You aren’t taxed on the increased value until the asset is sold. When the asset is sold, it would be best to claim the financial gain on your income taxes.

Get a Professional Valuation

It is highly recommended to obtain a professional assessment of the property. In the event of selling the property, it is crucial to ascertain the fair market value at the time of death. It is advisable also to acquire a building survey simultaneously.

Consult with an accountant to review tax implications. How does ownership or selling the property affect your financial situation?

Look at the big picture. Does spending money on the property now in exchange for a financial payoff later make sense? Or is selling the property a better decision?

Is a Mortgage Attached to the property?

If the inherited property comes with a mortgage, the inheritors are responsible for paying it off.

In some instances, the mortgage agreement may demand immediate repayment of the loan upon the original owner’s death. However, if the loan provisions permit the loan to be transferred to a trust or deed, the loan will continue to be in effect.

The beneficiary must carefully evaluate the expenses of paying property taxes and the mortgage. Based on this assessment, they can decide whether it is necessary to convert the inherited property into a rental property to generate income that covers these expenses.

Alternatively, they may choose to personally fund the expenses or opt to sell the property altogether.

Advertisement

Property Insurance

Did you know that in many countries, there is no legal requirement mandating homeowners to have insurance on their residential properties?

However, if you have a mortgage on your home, your lender may require you to have homeowners insurance. The lender wants to protect their investment if the property is damaged or destroyed.

Additionally, insurance, by its definition, is risk mitigation.

Even if you own your home outright without a mortgage, it is generally advisable to have homeowners insurance. This type of insurance can provide financial protection in the event of damage to your property due to hazards like fire, theft, or natural disasters.

Plus, homeowners insurance often includes liability coverage today, which can protect you if someone is injured on your property and sues you for damages.

While it may not be a legal requirement, having homeowners insurance is a practical and responsible way to safeguard your investment and mitigate financial risks associated with potential property damage or liability issues.

Before choosing a home insurance policy, carefully review and understand it to ensure it meets your needs and provides adequate coverage. For example, if you’re renting out the property, you’ll want to avoid common landlord insurance mistakes.

Consult a Real Estate Attorney

It’s wise to consult a real estate attorney to discuss the pros and cons of your property inheritance.

Whether you’re inheriting a house that’s paid off or one with a mortgage, a real estate attorney can help. If you want to sell, the attorney can assist with determining the price and terms for a sale.

Clearing the title is one of the main issues when you inherit a property. It’s tough if there’s more than one beneficiary. One person may want to sell while others don’t.

Real estate attorney fees are worth every penny if you avoid ownership disputes. A lawyer handles legal transactions and prevents problems between family members.

Keep or Sell the Inherited Property

Generally, a home in Australia is exempt from tax. But, there are situations when you have to pay additional taxes. For example, if you plan to:

Advertisement
  • Use Your Inherited Home as an Investment Property
  • Renovate the Home and Flip It
  • Deal in Land
  • Use the Property to Run a Business

These situations can result in income, capital gains, or services taxes.

Rent Out The Property

Another option is to turn the inherited property into a rental home. Everyone should agree on the rental plan if there is more than one beneficiary.

Renting the property out allows you to gain income, which can be used to pay expenses for its upkeep and rates, taxes, insurance and more. There may also be a profit that can be shared with the beneficiaries.

Refusal of the Inheritance

This option isn’t discussed often, but it’s a choice you can make. If you refuse the inheritance, you won’t be responsible for the property. That means you won’t assume ownership or the associated costs.

Some of the reasons for refusing to inherit a property include:

Financial Burden

The inheritor may be young or old and unable to manage the property and its expenses.

Getting a manager to look after it can relieve the burden, and their cost can be paid for from the rental income should the inherited home become a long-term rental property.

Liabilities and Debts

Inherited properties often come with existing mortgages, liens, or other debts.

If the inheritor is unprepared to take on these financial obligations, they may decline the inheritance to avoid potential legal and economic issues.

Emotional Attachments

In some cases, inheriting a home may bring up negative emotions or memories.

The inheritor may have personal reasons, such as a strained relationship with the deceased or traumatic experiences associated with the property, that lead them to reject the inheritance.

There may also be family members who believe they are entitled to the property and decide to contest the Will to get it.

Also, disagreements about managing or dividing the inherited property can arise if multiple heirs exist.

Advertisement

In such cases, one or more heirs may decline the inheritance to avoid conflicts with other family members. To get around this issue – a legal agreement can be organized so it’s clear how the property will be managed.

Legal Issues

Legal complications such as zoning problems, title issues, or other legal disputes could be associated with the property. The inheritor may not want to deal with these complexities and may refuse the inheritance.

Another option is for the inheritor to accept and then sell the property.

Tax Implications

Inheriting a property can have tax consequences, including property taxes and potential capital gains taxes upon selling. Some individuals may refuse an inheritance to avoid the associated tax liabilities.

Some countries have an inheritance tax. For example, in the UK, the threshold is £325,000, or if children are inheriting the home, the threshold is £500,000. After that, the estate’s value will incur a 40% tax.

Final Words

Owning inherited property can be made easier with the proper assistance from professionals.

Real estate is a valuable asset that tends to appreciate over time, making it a wise investment. However, it is crucial to seek reliable, professional guidance before making any decisions regarding inheritance.

Continue Reading
Advertisement