Property is a common way to pass wealth to another generation. A parent or relative might leave a house to you and your siblings as an inheritance. It’s a generous legacy, but inheriting property can also be a complicated process – especially when you’re grieving.
Inheriting a house with siblings comes with many questions: Who gets the house? Should you sell it? Should you live in it? What are your legal responsibilities? What happens if you can’t agree?
When emotions are running high, disagreements may feel inevitable. By working together and understanding all your options, it’s easier to navigate the process while keeping your relationships intact.
What To Know When Inheriting a House With Siblings
When siblings inherit a house together, each person is entitled to an equal share unless the will specifies otherwise. If you’ve ever owned a house, you know it’s a big responsibility. To make sure nothing slips through the cracks, it’s important to sit down with your siblings to create a game plan.
Don’t worry if you’re not quite ready to decide what to do with the property – that’s normal, especially if you’re dealing with a difficult loss or a beloved family home.
Some of the short-term issues you and your siblings will probably need to deal with include:
- Changing utilities into your names
- Updating or switching the insurance policy
- Handling maintenance and lawn care
- Making urgent repairs
- Deciding what to do with personal belongings in the house
It’s also a good idea to assign one person to run a title check. A title check will turn up any unpaid debts. As the new owners, you’re responsible for outstanding taxes, liens and unpaid utility bills.
When you’re ready, sit down as a family and give every sibling a chance to say what they’d like to do with the house. Typically, this is where disagreements arise. One sibling might want to live in the house, while another might want to sell it.
When siblings disagree on how to deal with an inherited house, the matter may need to be settled in court.
Keep in mind that unless your benefactor states otherwise in the will, each sibling has an equal ownership stake in the property.
It’s in everyone’s best interest, both in terms of relationships and finances, to come to a mutual agreement. If you can’t reach a consensus, the only other option is to shell out for attorneys and bring the matter to court.
The court proceedings will depend on state law, how the inheritance is structured and whether the house is in probate – the legal administration of a deceased person’s assets. In some cases, the court will decide what to do with the property as part of the real estate probate process. In other cases, a sibling would need to file a separate lawsuit.
Anytime there’s a dispute, it’s a good idea to hire a beneficiary lawyer. A beneficiary attorney can walk you through the probate process, help settle arguments and bring the case to court when necessary. They can also help you figure out how to transfer a deed on an inherited property.
Options When Inheriting a House With Siblings
When you inherit a home with siblings, you’ll have several options to consider. Here are the main ones:
A private arrangement between siblings
You can save money on lawyers and court fees by coming to a private agreement with your siblings. A private arrangement is the cheapest way to deal with inherited property. As long as everyone agrees, you and your siblings can decide what to do without paying for attorneys.
If you’re inheriting a large estate that includes a home, cash or other properties, you might simply split up the assets. One sibling could take the home, for example, while the other takes the cash.
Not ready to sell the property? As a group, you could decide to share upkeep costs and use the house for vacations.
When you co-own property with family, it’s a good idea to put the agreement in writing. Two commonly used structures are:
- Joint tenancy: Each sibling owns an equal share of the property. If one dies, their share is passed to the other siblings. An owner can only sell their share in the property with permission from the other owners. After the sale, the agreement converts into a tenancy in common.
- Tenancy in common: Siblings can own equal or unequal shares, and each sibling has the right to sell or transfer their ownership to someone else. If one sibling dies, their share is passed on to the surviving heirs.
When one sibling wants to live in the home, you can work out a buyout. In this scenario, one sibling would need to pay the other siblings to gain full ownership.
The buyout process usually involves some variation on these six steps:
- Get an appraisal to determine the fair market value of the home and its contents
- Add up any debts against the home, and subtract them from the appraisal value
- Divide the final amount by the number of siblings to determine each person’s share
- Get funding to cover the other siblings’ shares
- Buy out siblings and transfer legal ownership
- Transfer utilities and insurance into the new owner’s name
Don’t have the cash for a buyout? Traditional mortgage lenders might hesitate to allow borrowing against inherited property with multiple owners, but that doesn’t mean you’re out of options.
Some lenders specialize in estate funding. Look for banks that offer inheritance, trust or probate loans. The loans will likely have higher interest rates, but you can refinance to a mortgage with a lower interest rate later on. Other options to consider include cash-out refinancing and home equity loans.
Buying out other beneficiaries can be expensive. If you can’t get financing, another option is to create a private agreement. The sibling who wants the home could pay a predetermined amount of money to their siblings each month until the home is paid off.
A partition lawsuit
When you can’t agree on how to deal with the house, you may need to get the courts involved. A partition lawsuit is one way to split an inherited house with siblings – essentially, the lawsuit forces one or more siblings to sell.
When a sibling files a partition suit, a judge examines the case and decides what to do with the property. Since a building can’t be broken into small pieces, most judges simply order the home to be sold.
A partition lawsuit may be the only way to get a sibling out of an inherited house, especially if they refuse to leave or negotiate.
Sounds like an extreme option, right? It is. Legal action against a sibling can do lasting damage to your family and finances, so it should be a last resort.
During a drawn out partition suit, you can expect to pay for filing fees, attorneys and a court-ordered referee. You’ll also need to pay the property’s mortgage, maintenance and utilities while you wait for the case to go through the court system.
Sell the home and split the profits
If none of your siblings are interested in owning the inherited house, selling is usually the easiest option. You can split the profits to ensure that everyone benefits equally.
By selling the inherited property, you’ll avoid maintenance costs and other ownership responsibilities. If the market is strong, a sale can give each sibling a sizable cash inheritance.
Remember that you’ll need to pay capital gains tax if the home increases in value.
Rent out the home
If you’re not ready to sell but can’t afford to let the house sit empty, renting is a possible solution. The monthly rent can help cover expenses, such as repairs, taxes and mortgage payments, while you make a decision.
Even if you have a great relationship with your siblings, it’s important to put your rental agreement in writing. The agreement should lay out a plan for allocating rent money and splitting the profits. It should also identify who is responsible for key tasks, including:
- Managing the property
- Screening and communicating with tenants
- Collecting and depositing rent
- Scheduling and paying for repairs
Understanding Inheritance Taxes
Depending on where your inherited property is located, it might be subject to tax. Inheritance tax laws are set at the state level, but the majority of states have eliminated them.
In states that have an inheritance tax, spouses and immediate family members are often exempt. So, if you’re inheriting a parent’s home, you may not need to worry about taxes. However, a few states have a monetary exemption to this. To avoid a surprise tax bill, it’s a good idea to check your state’s tax inheritance laws.
Inheritance taxes are typically paid to the county. Pay attention to the due date. It’s usually 6 –12 months after the date of death.
Frequently Asked Questions
Here are answers to some of the most common questions about inheriting a home with your siblings:
Can anyone live in the inherited home?
A sibling can move into an inherited home as long as the other siblings agree – each sibling has an equal say in the matter. Depending on the agreement, the sibling living in the home might need to pay rent to the other heirs.
Can I use inheritance funds to buy out siblings?
You may be able to use inheritance funds to buy out siblings. Keep in mind that it can take time to settle the estate and distribute these funds. If you want to buy the home faster, consider a probate or trust loan.
Can you refinance to buy out other inheritors?
It might be possible to refinance an inherited property, but it depends on your siblings, any current debts against the home and your financial situation.
First, you’ll need to get your siblings to agree to a refinance. Then you can assume the mortgage, do a cash-out refinance and use the money to buy out the other heirs. This works best if you’re well qualified and the home has some equity.
If the home has a mortgage, the lender may require you to pay it off first. The same goes for any other debts against the property.
Can sibling(s) live in the inherited home alongside renters?
Siblings can live in the home with renters as long as everyone agrees to the arrangement. It’s a good idea to draft an agreement between siblings and a separate lease for any renters.
Family Affairs Ain’t Always Easy
Inheriting a house with siblings can bring up a range of emotions – and conflicts – especially when the home in question has deep sentimental value. By working with your siblings, you can avoid costly legal fees and ensure each sibling benefits equally.
Whether you decide to keep or sell the home, the process can have legal and financial ramifications. Not sure about your options? We recommend seeking professional advice to protect your interests.
IRS. “Estate Tax.” Retrieved May 2022 from https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax