The end of a parent’s life is a complicated and trying time for any family. From healthcare costs to funeral arrangements, there’s a lot to take care of during a time when everyone’s minds and hearts are heavy.
One thing you shouldn’t have to take care of, however, is fixing up and selling their home. While no one likes to think about the end, it’s best to prepare for the future. Thus, many elderly homeowners elect to sell their property before they pass so they can enjoy the money and plan what happens with the remainder.
If your parents want security and leisure in their remaining years, this guide to selling parents house before death walks you through the legal and practical process of selling their property while they can still enjoy the profits.
Can I Inherit My Parents’ House While They Are Alive?
Inheritance laws deal solely with what happens to a person’s assets upon their death. Thus, you can’t technically inherit something from someone who has yet to pass.1 You can, however, take possession of your parent’s home while they’re alive if:
- They give it to you as a gift
- You buy it from them
Regardless of which of these scenarios you choose, however, you’ll likely incur taxation. If parents give their children their house, or sell it to them under its fair market value, the IRS will levy a gift tax on the transfer.2 If they buy it for full price, they’ll just have to pay more in normal property transfer fees.
And, if a parent decides to transfer property upon their death, their child could be hit with estate taxes.
Understanding Estate Taxes and Implications
Estate taxes are levied upon a person’s death on the assets they pass on to the beneficiary of their will or next of kin. According to the IRS, some of these assets include:3
- Cash and bank accounts
- Securities and trusts
- Insurance payouts
- Properties
The IRS taxes transferred assets at their fair market value, rather than the amount that was paid for them. That means, if your parents paid $50,000 for their house in the 80s, but it’s worth half a million now, the estate taxes could be several times the property’s initial value.
That’s because tax can be as high as 40%, depending on the value of the estate. While Federal Estate Tax exemptions top $12 million, state-level exemptions are much lower to the point where the transfer of a single home may be taxed.4
Power of Attorney and Guardianship
If someone is experiencing extremely poor health, an unsound mind, or an inability to communicate, the right to make decisions for them can be granted in processes known as:
- Power of attorney (POA) – A POA is a legal document you can sign that grants a designated party to act on your behalf, should you become unable.5
- Guardianship – Guardianship over an individual may be given when they’ve made no legal preparations such as a POA. It grants control over their healthcare choices and asset management, but is only employed when all other legal processes have been exhausted.6
It’s prudent to designate someone to act on your behalf while you still have the ability. If you’re granted power over your parent’s affairs, assets such as their properties will be in your control.
Preparing the House for Sale
If you come into possession of your parent’s house and don’t want to live in it, there are a few practical concerns to take care of before selling it. From determining its market value to fixing up any loose ends, you’ll have to take care of a few practical concerns if you want it to go for a fair price.
Assessing the Home’s Value
Getting an appraisal can tell you the potential value of your home on the open market. Appraisals are done by trained real estate professionals who are:7
- Licensed to operate by their state
- Impartial in their estimates of a home’s value
- Paid by someone, often the seller of a home, for their services
An appraiser will determine your home’s value based on its current condition, and may even point out some areas to improve to increase its potential sale price.
Making Necessary Repairs and Improvements
The condition of your parent’s home can greatly affect its potential value. From aesthetic issues such as scuffed paint to more serious concerns such as a cracked foundation, any problems with the property can subtract from its overall value.
If you want to maximize the home’s potential value, repairing and improving it could motivate buyers to raise their cash offer. Some fixes may even be a legal requirement—if you make a deal contingent on the completion of specific repairs.8
Staging and Marketing the Property
Staging is the process of applying a few aesthetic touch-ups to a property, such as new paint or decor, to entice buyers to make an offer on a home. Some basic principles include:9
- Minimizing clutter and maximizing open space
- Bright, warm lighting
- Emphasizing a clean, welcoming environment—often by burning a lightly-scented candle or introducing some fresh plants and flowers to a space
After the home is ready for viewing, there are myriad ways to market it to potential buyers. Online postings, lawn-mounted For Sale signs, and classified listings may all be relevant ways to reach homeseekers in your area.
Sale-Leaseback Solutions
Maybe you’ve wondered how to sell your house and rent it back. Sale-leasebacks are a type of property sale contract that can sell a home quickly, even if it has issues that need to be repaired. They allow the property owner to sell their home, collect the lump sum from the purchase, and remain in it afterward without ever having to spend a night under an unfamiliar roof.
How Does a Residential Sale-Leaseback Work?
Sale-leaseback agreements are quite simple and have only a few steps:10
- A homeowner sells their house at a predetermined price.
- The buyer leases the house back to the previous homeowner, who continues to live in it as a tenant.
- Nothing else changes as long as both parties agree to continue renting the property.
Benefits of Sale Leaseback for Aging Parents
There is a plethora of sale-leaseback benefits for aging parents, including:
- Freeing up money
- Allowing them to continue living in the home they’ve made their lives in
- Alleviating the burden of homeowner responsibilities, such as making repairs and paying property taxes
A sale-leaseback, also known as a rent-back agreement, can make it easier for elderly parents to enjoy their home without having to worry about financial concerns or what will happen to their property in the future.
Keeping the Property in the Family
For a variety of reasons, children may elect to maintain possession of their family home after their parents pass. Doing so can bring comfort during the mourning process and evoke joyful feelings of nostalgia in a family. If you plan to keep your parent’s home, it’s important to understand the legalities of transferring property within a family.
How Do You Keep a Property in the Family After a Death?
There are a variety of ways to transfer your parent’s property into your or a family member’s name, including:
- Them selling or gifting it before they pass
- Them transferring it to the person of their choice via a will
- Their spouse or next of kin obtaining it through inheritance, even if a will wasn’t established
As mentioned, no matter which of these methods you use, you’re likely to incur taxes on the property transfer like capital gains tax.11 But, if the family home has strong sentimental value, it can be worth the financial costs.
Utilizing Trusts and Wills
While you may inherit your parent’s house upon their death even without a will or living trust, it could mean undue time, costs, and stress that can easily be avoided. Parents can make legal preparations for how their property and other assets will be split up via a:
- Will – A will is a legal document that explains how an individual’s assets will be distributed upon their death. The contents are generally fully legally binding, assuming the deceased doesn’t owe debts on the distributed assets.12
- Trust – Trusts are legally registered entities that exist separately from their owners. They provide legal protection for the trustor’s assets and also help distribute them according to their wishes once they pass.13
Establishing a will or trust prior to major health issues is a key concern for the aging, as they can minimize legal uncertainties about their assets upon their passing.
Considering Joint Ownership
If you have siblings or close relatives, parents may want to split their home amongst multiple family members. Joint ownership is when two or more people’s names are on the deed for a property.14 In instances of joint ownership, owners may consider:
- Buying their partners out of their shares of the property
- Renting the property to a third party and splitting the profits
- Inhabiting the property and paying rent to the other owners
- Cohabiting with the other owners
Finding the Right Help and Support
The death of a parent is an extremely trying event for a family that makes executing wills, preparing properties, and finding buyers difficult business. In such sad and confusing times, seeking professional help can make sorting through complicated real estate matters easier.
Working with Real Estate Agents and Financial Advisors
Real estate agents and financial advisors can walk you through some of the processes of selling your parent’s home upon their death. Keep in mind, however, they do work for profit—which they often make from the sellers of a property. So, if your parents had contacts they deemed trustworthy before their passing, working with them can be the most secure way to go.
Importance of Legal Consultation
The laws surrounding estates, inheritance, and related taxes are complex and confusing. Consulting a lawyer who’s well-versed in the subject can help you navigate the legal waters and avoid any bad actors who want to take advantage of the situation. Legal counsel may be especially necessary in instances without a living trust or will—meaning future ownership of the deceased’s assets isn’t fully certain.
A Sale-Leaseback: Planning for the Future with Confidence
To avoid the potential legal headache of selling a parent’s home upon their passing, many families elect to sell their property while they can enjoy the money. Sale-leaseback agreements allow parents to enjoy the profits from their property’s sale in the house they’ve always loved.
Sale-leasebacks allow aging parents to achieve financial security and enjoy their lives in the place they’ve always called home. If you or your parents are planning what to do with their future assets, consider a sale-leaseback so they can stay in their home while still cashing out on their investment.
Key Takeaways
- Selling a parent’s house before their death can provide financial security, with sale-leaseback agreements allowing them to continue living there as tenants.
- Transferring a property may incur taxes, such as gift tax, property transfer fees, or estate taxes, based on the property’s fair market value.
- Preparing a house for sale involves assessing its value, making repairs and improvements, and effectively staging and marketing the property.
- Legal processes, such as Power of Attorney, Guardianship, wills, or trusts, play a significant role in transferring properties and decision-making.
- Seeking professional help from real estate agents, financial advisors, and legal counsel can simplify the process of selling or transferring a parent’s property.
Sources:
- Investopedia. Inheritance Laws by State. https://www.investopedia.com/
- Internal Revenue Service. Gift Tax. https://www.irs.gov/
- Internal Revenue Service. Estate Tax. https://www.irs.gov/
- Investopedia. Estate Taxes: Who Pays? And How Much?. https://www.investopedia.com/
- Investopedia. Power of Attorney (POA): Meaning, Types, and How and Why to Set One Up. https://www.investopedia.com/
- National Guardianship Association. What Is Guardianship?. https://www.guardianship.org/
- Investopedia. What is an appraisal?. https://www.investopedia.com/
- Investopedia. Contingency Clauses in Home Purchase Contracts. https://www.investopedia.com/
- University of Notre Dame. Feels Like Home: Home Staging, Materiality and Embodied Consumption. https://osf.io/
- EasyKnock. What is a sale-leaseback?. https://www.easyknock.com/
- Royal Bank of Canada. Four ways to pass down your family home to your children. https://www.rbcwealthmanagement.com/
- Investopedia. What Is a Will, What Does It Cover, and Why Do I Need One?. https://www.investopedia.com/
- Investopedia. What Is a Legal Trust? Common Purposes, Types, and Structures. https://www.investopedia.com/
- Investopedia. Joint Owned Property: Definition, How It Works, Risks. https://www.investopedia.com/
