If you stand to inherit a property, such as a family home or vacation condo, the gift presents a critical financial decision: whether to sell, rent or keep the home.
And oftentimes, this decision is handled while dealing with the loss of a loved one.
Spend time today thinking about how the property may fit into your lifestyle and financial picture.
When the time comes, taking the following three actions can help inform your choice:
Set up an appraisal to learn the home’s value
Hire a professional appraiser who can determine the fair market value of the property on the date you assumed ownership.
Having a solid idea of the value can not only help you decide whether to sell or keep the home today, but it can establish a cost basis should you decide to sell it in the future.
Calculate the cost
to maintain the home
Mortgage payments, annual property taxes and utility bills will be your responsibility.
Factoring in other regular expenses, such as yard maintenance, snow removal and housekeeping, can give you a realistic picture of what it will take financially to keep the home.
Also, check with your attorney to ensure there are no tax liens or other assessments on the property.
Determine your ability and desire to maintain the home
Do you have the time to handle the upkeep? Additionally, think about how you’ll manage the property in retirement if you’re unable to perform maintenance tasks yourself.
As you work through these actions, here are some additional considerations that come with the decision to sell, rent or keep the home:
Parting ways with a family home can be emotional — even when you know doing so is the right decision.
Give yourself time to prepare the home for sale. This way you can sort through your loved one’s belongings and find closure at your own pace.
When the time is right, a cleaning company, home staging services and a realtor can help you put the property on the market. If you make a profit on the sale, apply the money toward your financial goals.
The extra sum can help make your goals of retirement, college tuition for grandkids or estate plans a reality.
Selling the home has tax implications that vary by state, so talk to a tax professional for guidance.
If renting the home is appealing to you, research what the rental market is like in your area.
Determine if a reasonable monthly rental price provides enough cash flow to cover upkeep costs.
Hiring a management company to clean, make minor home repairs or manage the rental process may be attractive, particularly if the property is miles away from your primary residence.
Additional tax considerations may apply depending on the number of days you use the home versus rent the space to others.
Consult a tax professional to understand if and how your tax situation may change.
The ability to continue family traditions, have a future retirement space or a vacation getaway may make keeping the home the right decision for you.
If you’re sharing ownership with a sibling or another family member, decide how you will split the financial and maintenance responsibilities.
If you inherit the home outright, the choices are yours to make. However, communicating your intentions with others may help alleviate tension, especially if the home has sentimental value to your family.
Consider the following financial steps as well:
Purchase home insurance. If the property has a pool, trampoline, boat or other recreational items, you may need additional coverage.
Save strategically for a remodel or upgrades if you want to adapt the home to suit your family’s lifestyle.
Update your estate plan. If you intend to keep the home in your family for another generation or two, don’t wait to prepare your legal documents. Advance planning can help pass the property smoothly to your inheritors. Have a conversation with your beneficiaries so they know what to expect.
Making decisions after the loss of a loved one can feel overwhelming. It’s OK to take your time and ask for help with choices along the way.
Guidance from a Realtor, attorney and financial adviser may help you be thoughtful about how the inherited home fits into your lifestyle and financial plan.
Christine King, CFP, CRPC, CDFA is a financial adviser and associate vice president with Ameriprise Financial Services, Inc. in Brookfield. She also lives and maintains a comprehensive financial planning practice in Kenosha.