Your home is probably the most valuable asset you own, so its important that you have a say over what happens to it when you die. Heres everything you need to know about including property in your will.
Buying a home is a huge financial commitment. Most people in the UK take between 25 and 35 years to pay off their mortgage. It’s important to be ready for the worst by writing a will, though, because a lot can happen in that time.
Inheriting a house can be both a blessing and a challenge, especially during what’s already an emotional time. If you’ve recently discovered that someone has left you their home in their will, or if you’re planning your own estate and wondering how to handle your property, this guide will walk you through everything you need to know about what happens when a house is left in a will.
As someone who’s helped many clients navigate this complex process, I can tell you that every inheritance situation is different But with the right knowledge, you can make informed decisions that honor your loved one’s wishes while protecting your own financial interests
The Property Transfer Process: How Ownership Changes Hands
When a house is left in a will, the property doesn’t automatically transfer to the new owner. Here’s how the process typically works
Probate Process
Most properties left in wills must go through probate—a legal process that validates the will and authorizes the executor to distribute assets according to the deceased’s wishes. This can take anywhere from a few months to over a year depending on:
Probate can be expensive and time-consuming. It’s not taxed at all in Virginia and a few other states. 10 per $100 in estate asset value. For a $500,000 estate, the probate taxes would be about $500.
Alternative Transfer Methods
There are ways property owners can set things up to avoid probate entirely
- Transfer on death deeds: Available in some states, these automatically transfer property upon death
- Revocable living trusts: These vehicles let you maintain control of assets while alive but pass them directly to heirs without probate
- Beneficiary designations: Specific to certain assets, these bypass probate entirely
Chris, one of my coworkers, recently got his grandparents’ beach house through a trust. He was glad they had set it up this way because he got it quickly instead of having to wait for the long probate process.
Your Options When You Inherit a House
Once you’ve legally inherited a property, you generally have four main options:
1. Move Into the House
You might choose to live in the inherited property yourself. Before making this decision, you should:
- Understand any mortgage situation
- Check the condition of the house
- Consider location and whether it meets your needs
- Review ongoing costs like property taxes and maintenance
2. Sell the Inherited Property
Many inheritors choose to sell, especially if:
- Multiple people inherited the property together
- You live far away from the inherited house
- You can’t afford the upkeep or mortgage payments
- You prefer cash to property
If you decide to sell, working with a knowledgeable real estate agent can help you navigate the process, especially the unique aspects of selling inherited property.
3. Rent Out the Property
Converting the inherited house into a rental property can provide ongoing income. This might be a good option if:
- The property is in a desirable rental location
- You want to keep the property but don’t want to live in it
- The rental income would cover mortgage payments and maintenance costs
- You’re interested in building your investment portfolio
4. Arrange a Sibling Buyout
If more than one person (usually siblings) inherited the house at the same time, one of them could buy out the others’ shares. This can be a good solution when:
- One heir wants to keep the property while others don’t
- You want to avoid family conflicts over what to do with the property
- You need a fair way to divide the inheritance
Financial Implications of Inheriting a House
Inheriting property comes with significant financial considerations:
Tax Implications
The good news is that inherited property receives a “stepped-up basis” for tax purposes. This means:
- The property’s value resets to its fair market value on the date of death
- You only pay capital gains tax on appreciation that occurs after you inherit
- If you sell immediately after inheriting, you might owe little to no capital gains tax
For example, if your aunt bought her house for $150,000, and it was worth $400,000 when she passed away, your cost basis would be $400,000—not the original purchase price. If you sell for $410,000, you’d only pay capital gains tax on the $10,000 increase.
Capital Gains Tax Considerations
When you eventually sell an inherited property, any gains will be taxed as long-term capital gains, regardless of how long you’ve owned it. These rates are typically lower than ordinary income tax rates:
- 0%, 15%, or 20% depending on your income level
If you live in the house as your primary residence for at least two years before selling, you might qualify for a significant exclusion:
- Up to $250,000 for single filers
- Up to $500,000 for married couples filing jointly
Ongoing Costs of Ownership
Don’t forget about the regular expenses that come with owning property:
- Property taxes
- Insurance
- Maintenance and repairs
- Utilities
- Homeowners association fees (if applicable)
- Mortgage payments (if the home has an outstanding loan)
Special Situations: Inherited Mortgages and Multiple Heirs
What Happens to the Mortgage?
If you inherit a house with a mortgage, you do assume responsibility for that debt. You’ll have several options:
- Pay off the loan using other assets or proceeds from selling the house
- Assume the loan if the lender allows, keeping the same terms
- Refinance into a new loan in your name
- Accept a deed in lieu of foreclosure if you can’t afford the payments
Reverse Mortgages
If the house has a reverse mortgage, things get more complicated. These become due when the borrower passes away, giving heirs 30 days to decide what to do. Your options include:
- Paying off the balance
- Selling the home (you can sell for 95% of appraised value even if the loan balance is higher)
- Getting a six-month extension while you arrange financing or a sale
When Multiple People Inherit Together
When a house is left to multiple heirs, everyone must agree on what to do with it. This can sometimes create conflicts. Your options include:
- Selling and splitting the proceeds
- One heir buying out the others
- Renting the property and sharing the income
- Going to court to force a sale if agreement can’t be reached
I’ve seen families torn apart by disagreements over inherited property, so it’s important to communicate openly and possibly work with a mediator to reach an agreement everyone can live with.
What If the Property Was Sold Before Death?
Sometimes, property mentioned in a will is sold before the person passes away. This creates a situation called “ademption,” where the gift essentially disappears because the property no longer exists in the estate.
If this happens:
- The gift is typically considered “adeemed,” and the beneficiary receives nothing
- Some jurisdictions may look at the testator’s intent or provide exceptions
- In cases where the property was sold during the owner’s incapacity, some states allow beneficiaries to receive the sale proceeds instead
First Steps When You Inherit a House
If you’ve just learned you’ve inherited a property, here’s what to do right away:
- Contact an attorney or the estate’s executor to understand the legal process
- Secure the property to prevent break-ins or damage
- Assess the condition of the house
- Transfer utilities into your name
- Pay any past-due taxes or bills associated with the property
- Get an appraisal to establish the stepped-up basis value
- Understand any mortgage situation by contacting the lender
- Check the homeowners insurance policy and make necessary changes
Avoiding Common Pitfalls
When dealing with inherited property, watch out for these common mistakes:
Emotional Decision-Making
It’s easy to make poor financial decisions when grief is involved. Take your time, consult professionals, and try to separate emotions from practical considerations.
Family Conflicts
Inheritance can bring out tension in families. Consider:
- Having open conversations about everyone’s wishes
- Working with a mediator if needed
- Being willing to compromise
- Getting everything in writing
Ignoring Tax Implications
Make sure you understand how your decisions will affect your tax situation. Consulting with a tax professional can help you minimize your tax burden.
Neglecting the Property
Even if you plan to sell, don’t let the property sit unattended for too long. Vacant homes can deteriorate quickly and attract vandals or squatters.
Final Thoughts
Inheriting a house through a will can be complex, but with proper planning and guidance, you can navigate the process successfully. Whether you decide to live in the property, sell it, or rent it out, understanding the legal and financial implications will help you make the most of your inheritance.
Remember that while this guide provides general information, every situation is unique. I always recommend consulting with professionals who specialize in estate planning, real estate, and taxation to ensure you’re making the best decisions for your specific circumstances.
Have you inherited a property recently? What challenges did you face? I’d love to hear about your experiences in the comments below!
Disclaimer: This article provides general information and is not intended as legal, financial, or tax advice. Always consult with qualified professionals regarding your specific situation.
What happens to your property if you’ve paid off the mortgage?
Any share of the property that you own as tenants in common or any property that you own as a sole proprietor is included in your residuary estate. If you and another joint tenant own property together, that property will automatically go to the other joint tenant. This is taken care of by your will.
When you use our online will writing service, you can’t leave property as a specific gift because that could have other effects that need professional help. Instead, any property that you own as tenants in common or as a sole proprietor will make up part of your residuary estate.
If you really want to leave something specific as a gift, you might want to call our service first. Simply call our will experts on 0203 695 2090 and we’ll help find the right solution for you.
What happens to your mortgage when you die?
When you write a will using our online will writing service, you can choose who you want to inherit your residuary estate. Any property that’s solely owned or owned as tenants in common at the time of your death will make up part of this.
If youve paid off the mortgage, your beneficiaries will inherit your property and be able to choose what to do with it. But if you havent paid off the mortgage, theyll inherit the property – usually along with all of its debt.
Here, well explore exactly what this means depending on how you own your property:
Who gets your property if you die without a will
FAQ
What happens when someone leaves you a house in their will?
Live in the house you inherit The house is yours, so you may choose to live in it. It’s crucial for those interested in occupying an inherited house to fully understand the property’s mortgage status.
What are the disadvantages of inheriting a house?
Here are six financial considerations when inheriting real estate. Planning for estate and inheritance tax. Estate tax. Considering a home appraisal. Factoring in property maintenance. Adding up average utility expenses. Anticipating the property tax bill. Calculating any capital gains tax.
What happens when you inherit a house that’s not paid off?
If you inherit a house that doesn’t have a mortgage, the first things you need to do are go through the probate process to become the owner, pay any costs that come with it, like property taxes, and get a title in your name. You’ll also have to pay for things like utilities, repairs, and insurance as a homeowner. To fully understand your responsibilities, you may need to talk to a probate lawyer and a tax expert.
What is the first thing you do when you inherit a house?
Here’s a step by step guide that breaks down this process. Step 1: Get a Copy of the Probated Will. Step 2: Confirm the Nature of Property Ownership. Step 3: Get a Certified Copy of the Death Certificate. Step 4: Draft a New Deed that Names You as the Property Owner. Step 5: Sign the Deed. Step 6: Have the New Deed Notarized.
What happens if a house is left in a will?
When a house is left in a will, the legal process of transferring ownership begins with probate court. The court will review the will and appoint an executor who is responsible for carrying out its terms. Here’s a breakdown of the legal steps involved: Probate Court: The executor files the will with the probate court.
Should you leave a house in a will?
We discuss the basics. Leaving your home to your children can be a generous component of the legacy you leave behind. But without careful planning, the process could generate unexpected costs or even legal difficulties. Here’s what to consider when leaving a house in a will. Think carefully about your motivation for passing on property to heirs.
What happens to a house after a will is made?
Then, per the instructions of the will, the judge will convey the property to the beneficiaries who can choose to keep or sell the house. In many cases the spouse receives the house as the sole beneficiary. Other times, surviving children will receive the house and split the inheritance equally.
What happens if a house has no will?
If there is a will, the house will pass to the beneficiary or beneficiaries named in the document. If there is no will, the court distributes the property according to the state’s intestate succession laws. After the person dies, the property can go to the heir named in a beneficiary deed or trust.
What happens to a house in probate?
Ultimately, what happens to a home in probate varies from state-to-state but generally one of two things will happen: survivors of the estate will inherit the property or the house will need to be sold through probate court. Let’s recap few quick things to keep in mind about inheritance and real property: Death does not release a mortgage.
What happens to a house if someone dies?
When someone dies, their house can’t stay in their name. Ownership must transfer to someone else, but who that person is and how it’s done aren’t easy questions to answer. If there is a will, the house will pass to the beneficiary or beneficiaries named in the document.