Watch for these 10 surprises when inheriting real estate

Unfortunately, your relative’s home likely comes with strings attached

Inheriting a home can seem like a windfall, but it’s rarely that simple. From reverse mortgages to estranged relatives eager to stake a claim, here is a roundup of the 10 most common headaches real estate heirs face via the Huffington Post.

Mortgage Transfer

Typically, upon the transfer of ownership of a property with a mortgage, there is a due-on-sale clause contained within the contractual documents. That clause means that the entire loan is billed rather than just the installment payment.

Reverse Mortgage

The money owed on the reverse mortgage that sustained your relative in their twilight years must be repaid to the lender, including all of the capitalized interest thereon, before you are able to take ownership of the property.

Rental

However, when an inherited property is encumbered by a home loan, you can sometimes rent out the property without first refinancing the mortgage from a residential home loan to an investment loan. Although none of that applies if you are stuck with a reverse mortgage.

Homeowners Insurance

Don’t expect to keep the prior homeowners insurance policy following the death of the decedent-insured when you inherit, because you can’t.

Testamentary Substitutes

Best-case scenario, ownership can transfer without the need for a court order or even a deed change upon the death of the owner. If the property was titled as either a joint tenancy, tenancy or was owned by a trust, pre-death, than the surviving co-owner automatically will receive full ownership at the time of death.

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Estate Tax

Get ready to pay taxes out the nose. In New York, descendants may be liable for both state and federal Estate taxes. Estates valued over $5.34 million will not only face New York State’s Estates taxes, but also require payment of a federal Estate tax bill, at a rate of 40 percent, for the amount that the Estate valued in excess of $5.34 million.

Capital Gains Tax

In New York, capital gains tax can reach a rate of 31.5 percent when combined with federal capital gains tax. Luckily, inherited estates are assessed at the date of death value of the property to the date of sale for capital gains purposes and therefore avoid a great deal of this cumbersome tax on future transactions, according to the Huffington Post.

Probate

When property is owned by the decedent, or with another person, as tenants in common, then the inheritance can only be transferred through a court proceeding called probate. So get ready to pay those court fees.

Heirs at Law

If the property owner did not leave a will, estranged family members may have a claim. New York State utilizes a table of consanguinity that prescribes the heirs at law when a decedent died without leaving a will. Under that table, a surviving spouse only receives the first $50,000 and then, must split the remaining assets 50/50 with the decedent’s surviving children – even children from prior marriages.

Right of Election

No matter how wicked the step-parent, you cannot disinherit a spouse completely, no matter how the will reads — except if the surviving spouse expressly waived their rights (i.e. incident to a prenuptial agreement). Your step-parent can elect the greater of $50,000 or 1/3 of your parent’s entire net estate. [Huffington Post]Christopher Cameron