When people think about making an estate plan, they likely don't think about too much beyond just making sure their loved ones are named as beneficiaries or heirs for their assets. One of the biggest assets that many people leave behind is their home, but that home can come with some baggage. For California residents who are working on an estate plan and those who stand to inherit the home, they should know about some of the possible challenges of inheriting a home.
One thing to consider is that the person inheriting the home will have to obtain new homeowner's insurance. The policy that was in place upon the death of his or her loved one isn't going to be valid after the death.
Another factor to consider is that there might be estate taxes that must be paid. For some properties that are valued under a specific amount, the estate tax isn't applicable on a federal level, but checking current state and federal tax codes is the only way to know for certain.
If there was a reverse mortgage taken out on the home, the person who inherits the home will have to deal with that. This means paying the balance of the reverse mortgage as well as interest.
When a reverse mortgage isn't a consideration but a mortgage is, there are still some aspects that must be considered. If the home isn't going to be a person's primary residence, they might have to change a residential home loan over into an investment property loan if the home will be rented out. Additionally, the transfer of ownership of the property might require full payment of the mortgage balance if there is a due-on-sale-clause in the contract.
As you can see, there is more to inheriting a home than just moving into the home. Understanding all aspects of inheriting a home can prove valuable for the person making an estate plan, as well as the heirs.
Source: The Real Deal, "Watch for these 10 surprises when inheriting real estate" Dec. 08, 2014