Trusts versus Probate
If you have inherited real estate, your options are defined, in large part, by how the property was left to you.
Probate is the legal process of settling the estate of the person who passed away.
A lot of people have been told that having a will will avoid the probate process. This is not true. If the property was left to you in a will, this does not avoid probate. A will is used in probate to determine how the assets should be distributed to the heirs.
If the property is held by a trust, probate can be avoided. This is because the trust owns the property, not the person who passed away.
A trust will always have rules which determine how and when title to the property is transferred to the heirs.
Very often, if the trust exists only as a vehicle to avoid probate, title to the property will be granted to the heir or heirs immediately.
Some trusts do have more complicated rules. For example, if the heir is a minor child, the trust may continue holding the asset until the minor child reaches a certain age.
If there is any uncertainty in how the trust operates, a good attorney can be very helpful in. Their knowledge of the law will help determine all the options that might be available to you. If you don’t have a good attorney, we can help you find one. Simply click here to contact us or dial 763-286-2845.
If there is a will, this will be used during the probate process.
If there is NO will, the probate process will still be used. In this case, the estate property will be distributed according to state intestate succession laws.
There are two ways to probate an estate in Minnesota. One is called the formal process and involves a judge. The other is the informal process, and does not involve a judge. In both cases, paperwork must be filed with the county. The whole thing becomes a matter of public record.
If the goal is to settle the estate as quickly and easily as possible, naturally the informal process is preferred. It is initiated by filing an application with the probate court. The probate registrar may reject the application. This means filing a petition for formal probate is necessary. You will probably want help from an attorney. If you don’t have a good attorney, we can help you find one. Simply click here to contact us or dial 763-286-2845.
What About Taxes?
One of the first things you probably want to know is whether you’ll be paying taxes on the inherited property.
While there are estate taxes due both on the federal and state (Minnesota) level, both have huge deductibles.
If the estate is less than $5.49 million, you owe nothing to the feds.
If the estate is less than $2.1 million, you owe nothing to the state of Minnesota.
If you sell the home, there may be capital gains tax due. This is a tax on any increase in value from date of the prior owner’s death until you sell it. Again, consult a tax professional if this applies to you. If you don’t have a tax person, we can help you find one. Simply click here to contact us or dial 763-286-2845.
What if There Are Multiple Heirs?
Disputes over inherited property can happen when there are multiple heirs to a property. Very often this is siblings or other family members. It could also be other friends or business associates of the decedent.
Regardless of your relationship to the other heirs, the key will be to calmly discuss your options and arrive at a mutual decision. Make sure everyone is given the chance to have their say. Creative solutions often work best! For instance, suppose one person want to keep the house but everyone else wants to sell. The person who wants to keep the house can buy the other’s shares. This could even be done out of a mortgage on the property.
Keep in mind that your loved one wouldn’t have wanted a bitter fight. Coming to a solution together will not only prevent a lengthy legal battle, but also keep your relationships intact.
After You Own The Property
Once you have title of the inherited property, you have a lot of options what to do with it.
In the most basic terms, you really have two options: keep it or sell it.
In either case, there may be “deferred maintenance” – repairs that maybe should have been made in the past, but didn’t.
There may still be a mortgage on the property. A mortgage will be paid by the estate, if there is cash there to do so. If not, the mortgage will still be in place, and the payments are still due. If the payment is too high, you may be able to refinance at a lower rate or longer term. This will bring the monthly payment down. If there is equity in the property, you can borrow against it. This money can be used to repair or improve the home, or for any other purpose. If you need to find a good mortgage broker, we can help you find one. Simply click here to contact us or dial 763-286-2845.
Should you choose to keep the home, you may use it yourself, or turn it into a rental.
Of course, it is possible the real estate you inherited was already rental property!
Using the home for yourself is, of course, the simpler of the two options. You will be responsible for any mortgage payments, real estate taxes, utilities and maintenance. If you have been a renter in the past, a lot of this will be new to you! One advantage of owning versus renting is that a large portion of your monthly payments (the taxes and interest) is usually deductible on your income tax. This is not the case with rent. If you have questions about this, we can help you find a tax professional to help answer them. Simply click here to contact us or dial 763-286-2845.
If you want to keep the real estate and not live in it, you can turn it into a rental. The obvious advantage is you will regular income from your tenant. The other advantage of holding real estate is that homes generally increase in value over time. So the longer you keep it, the more it is likely to be worth.
There are no guarantees, of course. Owning rental property can be very financially rewarding. There is also a certain amount of risk involved. A major expense such as a new furnace or a roof can upset your cash flow for a long time. Likewise, if property values go down, you could lose equity rather than gain it. The key is to not be ignorant. Educate yourself. Be prepared for any fiscal “bumps in the road”. You own real estate now. Whether you sell it or keep it, you are now an investor. It will take some effort on your part to be a savvy one.
Selling your inherited real estate means converting the equity in your property to cash.
Inherited property is very seldom in prime condition to sell right away and get top dollar. At the very least, the decorating choices are likely outdated. In worse cases, some elements of the home may simply be worn out. Some homes actually have structural damage or need expensive mold, lead or asbestos abatement.
The question now is, who takes these things on? You or the buyer?
There are two basic approaches to this; going for the quick sale or maximizing the value. You can’t really have both!
Selling For The Quickest Money
The advantages of the quick sale are simple:
- you get the money sooner
- you don’t have to do anything to the property
The disadvantage is, you will not get top dollar when you sell.
The key to a quick sale is having a buyer who can handle a property like what you have to offer. If there is a lot of work to be done, this is most likely an investor. Someone who wants to buy a property knowing more money will need to be put into it. Naturally, the investor expects to make a profit.
If you don’t have money to invest in the property yourself, this can be a great option.
Also, if you don’t have the time or inclination to get involved in rehabbing the property, this is the way to go.
Fortunately, we already have a network of investors ready to go. In many cases, we can get cash to our sellers within days or weeks.
Selling For The Most Money
Naturally, the other approach is the exact opposite. The disadvantages are:
- you need to address all the issues with the property
- you need to wait longer to cash out
The advantage is, when you do cash out, you will get a bigger check.
Naturally, we understand that you still want to get to that payday as quickly as possible. That is why, as probate specialists, we have a ready made process to make sure this happen for you.
The process is simple enough, although there are a lot of “moving parts”. They key to our success is that we can do it all “in house”. This means we have control over everything.
Step 1 –Perform a market analysis of the property “as is”
In other words, if we were to sell the house right now, what would we get for it? We do these kinds of transactions all the time, so we can get very accurate numbers here.
This becomes a baseline for the rest of our analysis. This also becomes a fall-back position. If you change your mind and want to take the easy way out, this is the price we would try to get from our investors for a quick sale.
Step 2 – Create an estimate of the cost of the necessary improvements
This can be anything from paint and carpet to new kitchens and bathrooms. It can also mean taking care of repairs such as roof or foundation. What we will end up with is a list of everything that can be done that will more than pay for itself when the house sells.
Step 3 – Perform a market analysis of the home as it will be with all the improvements from Step 2
Naturally, this will be based upon comparable recent sales in the area, just like an appraiser would do. Of course, we can’t get a real appraisal because the improvements haven’t been made yet.
Step 4 – Decision time
Do you pull the trigger and make the investment? How big is the reward?
Here is how we figure that out:
take the “as is” value from Step 1 and add the renovation cost from Step 2
(this is the total investment to get the property ready to sell)
subtract this number from the predicted sale price from Step 3
(this is the predicted profit by doing the rehab instead of selling “as is”)
make a decision – is it worth the investment in Step 2 to get this amount of profit?
Here is where there is a fork in the road. If you decide to make the improvements, we keep going. If it’s not worth it, or you can’t do it, you can always fall back on the “as is” sale.
Step 4 – Do the rehab
This can be done by any contractor. We have our own in-house contractor, however, so if you like, you can just leave the whole thing to us. This would be our preference, mostly because we would know the work is done right. This way we know the sale will go smoothly. However, it’s your property, your project, your decision.
Step 5 – Sell the house
Selling the home means marketing it through the MLS, perhaps doing open houses, whatever it takes to get an offer.
Once an offer is accepted, the real estate closing can take place. There is a lot of work to prepare for a real estate closing. Be prepared for a month or more between getting your purchase agreement signed and actually closing the deal.
We designed this process with you in mind.
You’ve been through a lot of challenges just to get to this point. Getting the property rehabbed and sold has a lot more challenges.
We make it easy for you by having experts available at every stage. You can be assured you will get the most money possible out of the property in the shortest possible time.
Which option is best for you?
As you can see, there are plenty of options available to you.
There are a lot of big decisions that need to be made. Decisions you don’t want to regret.
We have a whole team put together to help you make the right decisions.
Whether it’s legal, tax, mortgage, construction or real estate services, we’ve got you covered.