Inheriting a House With Siblings In California

Before a sale closes, it’s common practice to conduct a title check to find out if there are any liens on the property and who legally owns it. If you’re inheriting a house with your siblings, it’s wise to do a title check to figure out what steps to take next.

The outcome of the title check will decide whether you and your co-owners can split the inherited property as outlined in your parents’ will. If there’s a lien on the property, some of the sale proceeds will need to go towards clearing the debt, resulting in less money being shared among the inheritors.

Many inherited properties are family homes filled with memories of the siblings and parents. So, before selling, all belongings inside should be shared among family members.

Unless stated in the will, each person can keep items that belong to them, such as clothes, beds, CDs, etc. However, shared possessions like books, bicycles, and TVs should be divided equally among families before selling the house.

When taking over a house with siblings, make sure to pay any outstanding bills for electricity and water. Once these bills are cleared, consider ending any unnecessary services or transferring them to your sibling if they’re taking ownership.

This applies to insurance as well. If you’re purchasing the property, ensure the insurance is in your name or your sibling’s. If selling to a buyer, discuss with the insurance company about next steps during the transition.

Assuming all siblings are on board to sell the property, they should organize a family meeting to select a representative. This person will act on behalf of all heirs during the property sale.

The role of the representative is challenging, particularly in a conventional sale scenario. They must locate a real estate agent and ensure they effectively prepare the property for sale, market it, and negotiate on behalf of the family.

It’s imperative that all siblings are in agreement and have trust in the chosen representative. Usually, this is the eldest sibling or the appointed personal representative if the property has gone through probate. However, other co-owners may be designated if they possess greater real estate expertise, especially if they have been granted the right of first refusal.

If the inherited house is being sold through a cash buyer, all heirs should also agree on the cash offer.

Elderly parents can forget to pay property taxes, and when their kids inherit the property, those unpaid taxes get handed down too.

At the close of an estate sale, these taxes usually get taken out of the selling price, with each sibling sharing the burden equally.

If one sibling buys the property, they need to figure out how to settle the owed taxes. The same goes for inheritance tax.

If one or more siblings wish to keep the family home, they can share ownership through written agreements. Co-ownership has two possible structures. 

Joint tenancy signifies equal ownership between you and your co-owner. If a sibling passes away, their portion of the property goes to the other siblings, not their heirs.

Unlike joint ownership, where all parties have equal shares, tenancy in common permits unequal distribution among siblings who co-own a property. However, this doesn’t imply that the sibling with the largest share can assert exclusive ownership.

Additionally, if one of the siblings who inherit the property dies, their portion will be transferred to their heirs, not their co-owner who survives.

Keeping the recently inherited property as a rental is the top choice if you and your co-owner don’t want to sell.

Many siblings decide to rent out their inherited home when rental demand is high, they don’t need a lump sum of money right away, and they live in a sought-after area where property values are expected to rise. Of course, siblings who go for this option have a strong bond.

When opting to rent out the inherited property, the siblings should discuss who will act as the landlord and how the rental income will be split.

It’s important to note that managing tenants isn’t simple and to prevent misunderstandings, they should communicate solely with one landlord. The landlord handles administrative tasks, maintenance, repairs, and overall property management.

Additionally, each sibling should agree on how to divide the rental income. The one taking on the landlord role usually receives a higher share since they’re doing most of the work.

As for determining the rent, most siblings follow the 1% rule. This means the rent should be at least 1% of the inherited property’s purchase price per month to cover management costs and potential vacancies.

If the inheritors are unsure about what to do with the property, converting it into a vacation home is another excellent choice. This can help strengthen bonds among family members and their children.

However, if the inheritors aren’t getting along, problems like arranging visits to the vacation home, managing property alterations, maintenance, and more can cause significant stress for everyone involved.

If you’re considering transforming inherited property into a vacation home, here are some things to think about:

Hiring a property manager is a smart move if the siblings are distant from their inherited property. Usually, the property manager of a vacation home resides nearby to guarantee its upkeep and safety. The costs and requirements of the property manager are shared among the co-owners.

Property managers can also handle the booking arrangements for the vacation home. They’ll keep track of when a sibling plans to use it and for how long, ensuring that another sibling’s vacation plans don’t overlap.

While not required, creating a general expense account for the vacation home ensures that each sibling chips in for recurring costs such as utility bills, repairs, and maintenance, payment for the property manager, property taxes, mortgage payments, improvements, etc.

Establishing a homeowners’ association (like a condo board) is crucial as ownership of the vacation property grows. When heirs have many children, conflicts may arise over property management.

With a homeowners’ association, an estate strategy can be developed, ensuring smooth decision-making for the vacation home.

Brothers or sisters with a strong bond may decide to transform their inherited property into a shared living space for two. While not typical, co-owning and setting up a dual residence is feasible. The main hurdle would be figuring out how to divide expenses like utilities and property taxes.