What to Do When Inheriting a House With Siblings

What to Do When Inherting a House With Siblings

Inheriting a house with siblings can raise some questions about what it means for each of you financially. For example, will one of you live in the home and buy out the others? Or will you sell it and split the proceeds equally? Here are some options for handling this situation and possible responses to any differences of opinion that may emerge.

Talking to a financial advisor or estate planning attorney can help to untangle some of the sticky issues that can arise when a home is left to multiple people.

Can Siblings Inherit a Home?

It's absolutely possible for multiple siblings to inherit the same piece of property from their parents or someone else. That can happen when the property owner  again usually a parent  drafts a will or trust specifying that the home should be shared between the siblings.

When siblings inherit a home, everyone is entitled to an equal share of the property – unless, of course, the will or trust document specifies otherwise. For example, say you have three siblings. Your parent's will or trust might specify that one sibling should get a 40% share while the other three get 20% each.

Can that cause headaches? Definitely, which is why it's important to know what to do when inheriting a house with siblings in order to minimize personal conflicts or legal issues.

What to Do First When Inheriting a House With Siblings

What to Do When Inherting a House With Siblings

When a parent dies, there's a certain amount of time that may need to pass in order for you to grieve. As soon as you and your siblings are able to turn your attention to the home you've inherited, there are a few important things you might need to do first, including:

  • Putting the utility services in your or your siblings' names
  • Contacting the post office to have your parents' mail forwarded to your address
  • Sorting out your parents' belongings and personal effects
  • Taking care of any necessary maintenance or repairs
  • Updating payment information for the home's insurance policy
  • Paying any outstanding charges associated with the home, such as HOA fees or property taxes
  • Running a title check to look for any outstanding liens against the property

Once you've gotten some of these preliminaries out of the way, you can move on to the next step: deciding what to do with the home.

Inheriting a House With Siblings: What Are the Options?

There's more than one way to handle the situation when you inherit a home with your siblings. Having an open and honest discussion can help to ensure that everyone is on the same page. It's also an opportunity for each sibling to have a voice and a vote in what happens to the home.

With that in mind, here's what you might consider doing with the inherited property.

Option #1: Sell

Selling an inherited home is an obvious choice if neither you nor your siblings plan to live in it. You could sell the home and split the proceeds from the sale equally.

Whether this option is realistic can depend on what your parents' wishes were and how profitable selling might be. If it was your parents' desire that the home should stay in the family, that could be a stumbling block when coming to an agreement on whether to sell or not.

Likewise, your parents' will could specify that the home cannot be sold. In that scenario, you'd have to consider Plan B (or Plan C).

Option #2: Buyout

If a sibling is reluctant to sell or your parents' will bars you from selling, you could try to work out a buyout agreement. In a buyout situation, one sibling would maintain ownership of the home. They would then pay the remaining siblings an amount of money that's equal to what their share of the home is worth.

So, assume that you inherit a $500,000 home from your parents. There are four siblings in the family, and you want to keep the home. To make a buyout work, you'd have to agree to give your three siblings $125,000 in cash or equivalent assets. You might be able to use other inheritance funds to pay or get an estate loan for that purpose.

Buyouts can be a good option if the sibling who wants to keep the home can afford to make the other siblings whole. If you're considering keeping an inherited home and buying your siblings out, it's a good idea to get the home professionally appraised to determine its value. You can also deduct any debts, such as a mortgage, against the appraised value when calculating how much you'll need to pay to your siblings.

Option #3: Rent

If you can't agree on selling and a buyout isn't doable because of money issues, you and your siblings could always agree to rent out the home.

The upside of this option is being able to collectively share in the rental income from the property. Renting could make sense if you think you might revisit the issue of selling or a buyout in the future, or if you're obligated to keep the home in the family.

If you decide to rent, you and your siblings will need to decide how maintenance and rent collection will be handled. It might make sense to agree to hire a property management company to do the heavy lifting. If the property manager is unable to divide rental income equally among you and your siblings each month, you might appoint one sibling to be in charge of doling out payments.

Should you decide to rent out the home together, it's important to make sure you're structuring the title correctly. There are two options for doing so:

  • Tenancy in common. With this arrangement, each owner has an interest in the property, although interests may not be equal.
  • Joint tenancy. In a joint tenancy, all co-owners have the same ownership share. If one co-owner dies, their share would be distributed among the remaining owners.

An estate planning attorney can guide you on which ownership structure might be best.

What Happens If You and Your Siblings Can't Agree?

What to Do When Inheriting a House With Siblings

If you've discussed your options for handling an inherited home but you're not able to come to an agreement, filing a lawsuit may be the next step. Specifically, one sibling could file a partition lawsuit in probate court.

A partition lawsuit, if it succeeds, can force the sale of a jointly inherited home. A judge can review the details of the case and decide whether to require all siblings to agree to the sale. The court may also appoint a mediator who will attempt to work with all involved parties to reach a satisfactory resolution.

Filing a lawsuit is usually an option of last resort and it may be best avoided if possible. Not only can legal disputes over property drive a wedge between you and your siblings but if the court proceeding is lengthy and drawn out, you could find yourselves paying hefty fees to your attorneys.

Bottom Line

Inheriting a house with siblings can be a blessing or a curse, depending on your family situation and how you handle it. Having regular discussions with your parents about what their wishes are while they're still living could help you and your siblings avoid conflicts over inherited property down the line.

Estate Planning Tips
  • Estate planning may seem complicated if you're not well-versed in the ins and outs of things like estate tax and inheritance tax. If you're set to inherit a home or other property from someone else, it may be helpful to talk to a financial advisor about what that could mean for you. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
  • Aside from a home, there may be other inherited assets that will need to be sorted out once your parents pass away. For example, they may have life insurance policies, retirement accounts, investment accounts, land, stocks, antiques and other assets. Making sure that your parents have an updated will in place can help you and your siblings avoid confusion over who should get what once they pass away.

Photo credit: ©iStock.com/FG Trade Latin, ©iStock.com/monkeybusinessimages, ©iStock.com/PixelsEffect

The post What to Do When Inheriting a House With Siblings appeared first on SmartAsset Blog.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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