Have you recently inherited property in Florida and you don’t know what to do? When you inherit a house in Florida you need to know the basics about 1) how you inherited the home; and 2) how to manage all of the issues associated with an inherited property.
How did you inherit the house in Florida?
There are three ways to inherit a house in Florida: 1) by deed, 2) by will, and 3) by trust. The way you inherit the property will dictate the next steps that you take.
Inherit a House by Deed
You inherit a house by deed when someone dies and they reserved a life estate and you are the “remainderman” or you jointly own the house with your parent or family member (this article isn’t meant for married couples because basically nothing changes). If you inherit a house by deed, the follow-up does not involve Florida probate proceedings and may typically involve the recording of an affidavit or death certificate in the public records. For title issues, a sale is easy if you decide to sell the property.
Inherit a House by Will
You inherit a house by Florida will if the person dies with his or her sole name as the owner on the deed. In order to sell the house that you inherit by will, you need to go through the Florida probate court. In many cases, the house cannot be sold until 4-6 months after you file for probate because you have to wait to clear the legal title to the home of the probate proceeding.
Inherit a House by Trust
You inherit a house by trust if the trust agreement states that you, or you with others, are entitled to the house. In cases involving a person died leaving a spouse or minor children, you will still need Florida probate to clear title because of the Florida homestead rules. Be careful when estate planning with the homestead. If the person that died did not have a spouse or minor children (one child under 18 years old), then the process to clear title for a real estate sale should be fairly easy.
What you need to know when you inherit a house that needs Florida probate
Florida probate can be fast, or really slow. Let’s start with the fast probate. If you probate an estate and the person has been deceased for more than 2 years, then the probate can go pretty fast. As a matter of fact, probate can take less than a week if you have all your family in order and you have a good probate attorney. If, on the other hand, someone recently died and you want to sell the property, then you may have to go through the slower probate. Probate is slow because you have to publish notice to creditors in the newspaper and wait at least 4 months before you can sell the property. Probate allows creditors to dispute homestead status or allows them to collect on real estate that is not homestead. The creditor issue is the reason why probate takes so long. You have to wait during the publishing period because unknown creditors need to get the chance to file a claim to get paid. After the waiting period, then you are free to sell. Probate is needed because the property ownership records (title) needs to connect. If you inherit a property, that means that the last owner in the property records died. Because the last owner died, that person cannot sign a deed over to you. Instead, you need the probate judge to enter an order that declares you as the new owner. In the case of homestead property, you can only sell the property after the probate judge enters the “order determining homestead status of real property.”
What to do when you inherit a house in Florida with a mortgage
The key thing to know about inheriting a house with a mortgage is: if the mortgage isn’t paid, the house gets foreclosed. Mortgage companies will accept payment from you if you are paying the deceased person’s mortgage. The processors just see the check and the mortgage number. If you tell the mortgage company that your family member died, then you will deal with that specific mortgage company’s procedures and guidelines when someone dies. Under federal law called the Garn St. Germain Act, the mortgage company cannot call in the entire mortgage if your parent died and you inherit your parent’s primary residence. You may run into some problems if you inherit commercial property, but that is a whole other topic of discussion. Ultimately, and of particular interest to you, the mortgage company cannot go after your personal bank account under Florida law if you decide to walk away from the inherited property with a mortgage. The inherited house will be foreclosed and you will likely be named as a defendant in the foreclosure suit in order for the bank to clear your name from the title of the property. It would be a safe move to hire a probate attorney to get an order abandoning homestead real property if you chose to walk away from an inherited property with a mortgage.
Management of property when multiple people inherit a house in Florida
If you inherit property with more than one person, things can be tricky. Under Florida law, co-owners are equally responsible for debts, liabilities, and income. Rent, property taxes, property insurance, property management fees, maintenance expenses and so forth, will need to be split equally among the co-owners. Of course, it is logical to deduct expenses from all rent before net rent proceeds are ultimately paid out. This situation can be an administrative nightmare. Typically one child will do all the work while the others sit back. If the “property manager” child does this, he or she should be paid in order to prevent resentment and fighting. It is work. Alternatively, you can hire a property manager like ERA Heavener Realty to help. Once a house with multiple owners is sold, the proceeds should be split equally among beneficiaries according to the deed, will or trust document. Do be warned. If a sibling moves into a house that his or her other siblings co-own, there can be big problems if expenses are not paid by the sibling living in the house. It happens. Don’t let deadbeat siblings live in an inherited house. Also, problems can arise down the road if that live-in-child wants to keep the house and the other children want to sell the house.
What are the tax implications of inherited property in Florida
First, the property taxes will go up if you inherited the person’s homestead and you have your own homestead. If your parent owned the house for a very long time, then the property taxes will go up a lot. Second, the income taxes from the sale of the house will not be too bad. There is an income tax concept called “step up in basis,” which means that instead of inheriting the house at your parent’s basis (the amount they paid for the real estate plus capital improvements), you inherit the home at the value of the property on the date of your parent’s death. This is good especially if you already own a house because, for non personal residences, you have to pay income tax on the positive gain between the basis and the sale price.
(1) Gifting is bad because no stepped up basis: Mom buys the house in 1980 for $10,000. In 2012, Mom deeds the house worth $110,000 BEFORE she dies. You sell the house after she dies. You have to pay taxes on the $100,000 gain.
(2) Inheriting at death is good because of stepped up basis: Mom buys the house in 1980 for $10,000. Mom dies in 2012 when the house was worth $100,000 and you inherit the house. You sell the house you inherit 6 months later at $110,000. You have to pay taxes on the $10,000 gain. Not only is it important to realize not to gift property before you die. You now know that you won’t face a big income tax hit when you inherit a home.
Putting it all together…
If you inherit a home you have to make a decision: (1) sell the house; (2) rent the house; (3) deal with co-owner family members living in the house; or (4) let the mortgage company foreclose after you walk away. Delay on this decision will ultimately cost you money because title issues can delay the sale of the house or management issues can cause fights and headaches.
Kellen Bryant is a Jacksonville, Florida Probate Attorney that also focuses his practice on Florida elder care law. Kellen has written a 46 page book for elderly veterans called, Long Term Care Guide for Veterans and their Families, and his book is available free at his website. The contents of this article does not form an attorney-client relationship, you are best advised to seek legal counsel specific to your situation.