Where There’s Property . . . There’s A Will

By Jaclyn Quinn, Esq.

Deputy Director at DCRAC

More often than not, real estate is a family’s largest asset and the mortgage is often the largest liability. This reality makes estate planning extremely important and prevents inheriting property from becoming a tricky situation. The passing of property works best where there is a will, with a clear beneficiary to inherit the real estate. 

First, let’s talk about what happens if no plan is in place 

When a property owner dies without a will, state statute dictates the intestacy succession of all assets owned by the deceased. For example, in Delaware, if an unmarried man with three children passes away, his three children would each inherit one-third of the property as tenants in common. Or, for instance, if a married couple has three children, and only spouse A was on the deed of the property and spouse A died, spouse B would get a life estate in the property, but the children would each get a one-third remainder interest in the property. The spouse would not be able to sell or mortgage the property without the consent of the children. Family dynamics could make this a troubling scenario. There is a common misconception that as a married couple, the spouse would automatically inherit everything.

The issues are exacerbated if there is a mortgage owed on the property. A mortgage is attached to the property as a lien. The borrower is obligated through the promissory note. Therefore, those who inherit a home are not personally liable for the mortgage. But they need to do something about the mortgage. Options include assuming the mortgage, where one agrees to take over the debt; refinancing, where you obtain a loan to pay off the existing mortgage; or selling the property to pay off the mortgage. Without a valid will, it is difficult to work with the mortgage company, especially when there are several family members involved. 

Now let’s talk about what happens when there is a plan in place

When there is a will that appoints an executor and specifically mentions who should inherit the real estate, the executor is able to open the estate and ensure the property passes to the chosen beneficiary without further delay. While there may still be an outstanding mortgage to grapple with, the process is simplified. 

Upon inheriting real estate, the owner has to do a few very important things rather quickly: secure the property, assess the liabilities, and pay taxes and utilities. Typically, the estate is able to cover the first three months of expenses if funds are available. Because many bills associated with a house stay with the property, they simply cannot be left unpaid. 

Estate planning often isn’t a top priority for many of our clients

Often, several family members inherit the property and need to make decisions as a group in order to proceed. A family meeting can be a valuable time to discuss the options. Sometimes one or two individuals buy out the others if joint ownership isn’t an option. Often there is no life insurance or other source of funds to satisfy the balance and we first have to clear a path forward with the mortgage company. If there was a reverse mortgage, options might be even more limited. We work to facilitate communication among all of  the heirs and beneficiaries as we work to close the estate.

Please discuss important decisions such as inheritance, reverse mortgage, healthcare directive, etc., with your loved ones. It is never too early to plan ahead. 

Bio

Jaclyn Quinn is licensed to practice law in Delaware. In addition to the Money School, DCRAC offers a nonprofit law firm and credit union. For more information, or to schedule a consultation, please call (302) 298-3251 or email Jaclyn at [email protected].