Inheriting a Home? Here's What Most Families Get Wrong

Table of Contents

1. Probate and the Transfer of Inherited Property
2. Unexpected Financial Obligations
3. Co-Ownership Disputes
4. Administrative Challenges
5. What You Can Do to Protect Your Rights & Interests

Inheriting a home comes with a host of implications that go beyond getting a key. One must transfer ownership of real property, which is a process that involves legal, financial, and logistical challenges that many folks are simply unprepared to handle, especially while they’re still grappling with the loss of a loved one.

Unfortunately, it can be costly and time-consuming to undo any mistakes that were made.

At Blood Law, we regularly work with families navigating inherited property, and frequently see the same issues come up again and again. Understanding these pressure points, and what you can do about them, in advance can make a significant difference in your journey and the outcome you reach.

Probate and the Transfer of Inherited Property

It’s a common misconception that heirs will automatically inherit a home after their loved one’s death, or that some type of automatic transfer takes place. The reality is that the process and the timeline of passing real property after death depends on how it was titled and whether the decedent had an estate plan.

For example:

• If the home was held solely in the decedent’s name without a designated beneficiary, trust, or right of survivorship, it will generally need to go through probate, a process administered for the Clerk of Superior Court in the county where the decedent lived. Depending on things like the size or complexity of the estate, probate can take anywhere from a few months to over a year. In addition to the protracted timeline, probate also prevents heirs from selling, refinancing, or making binding decisions (like renovating or renting it out) about the property. This can create costly problems when unsuspecting heirs begin listing homes, stop making payments, or start moving in belongings before ownership has transferred.
• If the decedent had a valid will, the home and other property will pass according to the terms outlined by the will.
• If there is no will, intestate succession laws (N.C.G.S. § 29, the Intestate Succession Act) will dictate inheritance. This can result in outcomes that some families don’t expect, especially when there are blended families or estranged relatives.

Unexpected Financial Obligations

While most people understand to some degree that inheriting a home comes with costs, not everyone knows what the totality of those expenses look like. Some financial obligations that can catch heirs by surprise include:

• Ongoing carrying costs. Monthly payments (if there is a mortgage), utilities, property taxes, homeowner’s insurance premiums, HOA fees, and other similar expenses continue while the estate is being administered and are not paid for by the estate. Instead, someone must actively manage these obligations to ensure continued insurance coverage and general upkeep of the home, and to avoid accumulating tax liens and debts.
• Mortgage assumption. If there is an outstanding mortgage, certain heirs, including spouses, children, and other relatives who occupy or will occupy the property, can assume the mortgage without triggering a due-on-sale clause, which occurs when a lender demands full repayment of a home loan when a property is sold or transferred, under the federal Garn-St. Germain Depository Institutions Act. To obtain this protection, however, heirs must notify and work with the lender and complete their internal process, which can vary from lender to lender.
• Stepped-up basis and capital gains. After a home is inherited, its taxable cost basis is reset to the fair market value of the property on the date of the owner’s death, rather than what the decedent initially paid for it. This is the stepped-up basis and it can be advantageous for heirs who inherit homes that have appreciated significantly over the years. Still, heirs must be aware that if homes appreciate further prior to being sold, the post-inheritance appreciation will be subject to capital gains tax. As such, heirs should make it priority to know the fair market value at the time of inheritance so they can make informed decisions about what to do with the home.
• Estate debts. Many heirs understand that they might have to assume an outstanding mortgage, but other debts and encumbrances may be attached to an inherited home as well. This can include home equity lines of credit (HELOCs), unpaid property taxes, contractor liens, and other debts that will need to be addressed and resolved before or during the transfer of ownership. Conducting a title search early in the process of inheriting a home can help identify any estate debts before they arise later in the process and cause avoidable issues.

Co-Ownership Disputes

It is very common for a home to pass to more than one heir, which can create a number of challenges. When two or more people inherit a home, they become co-owners who must agree on any major decision concerning the property, including whether the home should be sold, renovated, rented out, or held.

When co-owners are unable to come to an agreement, any co-owner can file a partition action under N.C.G.S. § 46A, which allows co-owners (including heirs) to divide or sell inherited real estate when they can’t agree on its management. Partition actions can generally have two outcomes:

• Partition in kind, where land is split by the court (something that isn’t always possible for every property, especially a single-family home); or
• Partition by sale, where the property is sold and proceeds are distributed among owners.

Partition actions, like many other court interventions, can add cost, time, and frustration, and rarely provide outcomes that all parties find suitable.

Administrative Challenges

Apart from disputes that can arise between co-owners, other challenges exist in the scope of administrative work involved in transferring a home to heirs. Some examples include:

• Conducting a title search and clearing any liens or encumbrances
• Filing a new deed to reflect the transfer of ownership
• Updating homeowner's insurance into the estate's or heir's name to avoid coverage gaps during the transfer period
• Managing the physical contents of the home
• Addressing deferred maintenance or code violations that may affect the property's value or insurability

What You Can Do to Protect Your Rights & Interests

Whether you’re someone who has inherited a home or a property owner who wants to ensure that a family home is passed seamlessly to your heirs, there are simple steps and considerations that can help protect your rights and interests.

Consult an Estate Planning Attorney Early in the Inheritance Process

Reaching out to an attorney who practices estate planning and probate law before making any decisions or signing any documents is one of the wisest things you can do. The weeks that immediately follow a death are when the most consequential decisions get made, and when people are least equipped to make them as a result of grieving, feeling overwhelmed, or being unfamiliar with a complicated legal process.

At Blood Law, we have worked with families who unknowingly waived important rights, created unexpected tax issues, or otherwise complicated the probate process by acting without guidance. These are precisely the situations a good lawyer can provide the necessary insight and foresight to address before they become costly problems.

Plan Ahead with Estate Planning Tools

The same principle of seeking professional guidance also applies to homeowners who are planning ahead. Creating or updating a will is a great starting point, but depending on the size and composition of an estate, there may be other, more efficient options and estate planning tools available.

This includes a revocable living trust, which can allow property to transfer to designated beneficiaries without the need for probate and the costs and delays that come with it. Other potential options include titling property jointly with right of survivorship, or using an enhanced life estate deed, also known as a "Lady Bird" deed, which allows for the automatic transfer of real estate upon death outside of probate.

As with all things estate planning, the best course of action will depend on your unique circumstances and goals, and the best place to start is with an experienced attorney.

About Anna Blood

Anna Blood is the Founding Attorney of Blood Law, who has dedicated her practice to guiding individuals and families through complex legal matters involving family law and estate planning, including matters of asset protection, estate administration, and more. A mother of four and passionate advocate, she’s known for providing personalized, concierge-level service and for approaching client cases with the scrutiny, confidence, and candor they demand. To schedule a consultation with Anna and our team at Blood Law, contact us.