Five Common Mistakes Heirs Make After Inheriting a House in Los Angeles

Navigating LA Real Estate: Essential Advice for Heirs

In the popular Netflix series, The Summer I Turned Pretty, a central plot point revolves around a family inheriting a cherished home. The situation is charged with emotion and involves disagreements about who should receive the property, what inheritance truly means, and how to move forward.

It’s a similar issue that hits many who inherit a home in Los Angeles – and it can be both a blessing and a burden. Emotionally, inheriting a family home can stir up memories and attachments that make objective decision-making difficult. Financially, the property may represent a significant asset, but it also brings with it responsibilities such as taxes, maintenance, and the possibility of family disagreements.

Here are the top five mistakes that heirs often make after inheriting a home – and can be avoided with the right knowledge.

1. Not understanding probate and tax implications

The probate process is often the first hurdle that heirs encounter. Also, remember: Probate and tax law can be intricate. If you’re unsure, consult with an estate attorney or tax professional experienced in California real estate to avoid costly errors. Here’s a quick look at some common definitions and issues.

What is Probate? Probate is a court-supervised process for authenticating a deceased person’s will, assessing their assets, paying debts and taxes, and distributing what’s left to heirs. In California, probate can take anywhere from several months to over a year, depending on the complexity of the estate. Not all properties must go through probate; for example, homes held in a trust can bypass the process.

Common probate pitfalls for heirs: Delays, high court and attorney fees, and disputes among heirs can arise. Missing deadlines or failing to properly notify creditors can slow the process and increase costs. Property tax reassessment and Proposition 19: California’s Proposition 19, passed in 2020, reshaped the rules around how inherited properties are taxed. In many cases, a parent-to-child transfer triggers a reassessment to current market value, which could significantly raise property taxes unless the heir uses the home as their primary residence.

Capital gains taxes: When you inherit property, your “cost basis” typically steps up to the current market value at the time of the original owner’s death. This means that if you sell soon, you may owe little or no capital gains tax. However, missing this window or misunderstanding the rules can result in a hefty tax bill.

2. Rushing to sell without making necessary repairs

Many heirs, eager to liquidate the asset, rush to sell the inherited home “as-is.” While this can provide quick relief from ongoing expenses and responsibilities, it often means leaving money on the table. Here’s what to know:

· Risks of selling “as-is”: Homes sold without repairs tend to attract investors seeking deep discounts. Buyers may be wary of underlying issues and submit lowball offers, reducing your final sale price.

· How repairs and upgrades can increase value: Strategic updates like fresh paint, landscaping, minor kitchen or bathroom repairs can dramatically improve marketability and boost the sale price. Focus on repairs that have a high return on investment – and avoid these that don’t.

· Finding reliable contractors and inspectors: Ask your realtor for recommendations or check platforms like Angi and the California Contractors State License Board to find reputable professionals.

3. Allowing the property to sit vacant

Leaving an inherited home empty for an extended period is risky and can lead to unexpected costs. Here is some information – and tips – that can help:

· Risks of vacancy: Vacant homes are magnets for theft, vandalism, and squatters. Insurance companies may limit or void coverage after 30 days of vacancy, and unoccupied homes deteriorate faster due to lack of regular maintenance.

· Keeping the property secure and well-maintained: Regularly inspect the property, collect mail, maintain landscaping, and use timers for interior lights. Notify local police and neighbors that the property is vacant.

· Options for temporary rental or house sitting: If you’re not ready to sell, consider short-term rental platforms or professional house sitters to keep the property occupied and well cared for until a decision is made.

4. Overpricing the home

It’s understandable to want to maximize the value of your inheritance, but emotional attachment can cloud judgment, leading to overpricing.

· Make sure you understand the Los Angeles real estate market: LA is a dynamic and competitive market, but pricing must reflect current realities, such as location, condition, and comparable sales. Overpriced homes sit unsold and may ultimately sell for less than market value.

· The pitfalls of emotional pricing: Heirs sometimes price homes based on memories or perceived value, not market data. Setting a realistic price is key. · Working with a knowledgeable local realtor: A seasoned LA realtor, like me, understands neighborhood trends and can provide unbiased pricing strategies. Look for agents with strong track records and local experience.

· Overpricing can deter buyers: Homes priced too high scare off buyers, leading to fewer showings and longer time on market. Eventually, you may be forced to reduce the price – sometimes below market value.

5. Making one of these other common missteps

Beyond the major areas above, several other things can trip up heirs:

· Ignoring outstanding debts, mortgages, or liens: Unpaid debts can lead to foreclosure, delays, or legal action. Investigate and resolve all obligations tied to the property.

· Poor communication among heirs: This is a common one – and family disputes over the inherited property can quickly escalate. Try to have transparent, regular communication to avoid misunderstandings and legal challenges.

· Neglecting a proper title search and transfer: Make sure the title is clear, all liens are resolved, and ownership is properly transferred into your name before selling or refinancing.

· Underestimating the costs of ownership: Utilities, maintenance, insurance, and HOA fees can add up quickly. Budget for ongoing expenses until the property is sold or transferred.

· Not gathering important documents: Collect the deed, will, trust paperwork, tax bills, and mortgage statements. Having these ready will streamline the process.

Best Practices for a Smooth Inheritance Process

Successfully inheriting and managing a Los Angeles property requires organization, teamwork, and clear planning. Here’s what I suggest:

· Build your team: Engage a local realtor, estate attorney, tax advisor, and reputable contractor to guide you through each stage.

· Establish clear communication: Set regular meetings or updates with all heirs and stakeholders. Document decisions to prevent future disagreements.

· Develop a timeline and action plan: Map out next steps, including probate, repairs, listing, and sale, so that everyone knows what to expect and when. Remember to Ask for Guidance

You can do it!

Inheriting property in Los Angeles is a significant responsibility, but you don’t have to navigate it alone. Seek guidance from professionals and take the time to educate yourself before making decisions. Don’t hesitate to ask for help or clarification on complex issues. It’s true that mistakes can be costly, but they are also avoidable with the right support. As a local expert and Licensed Real Estate Broker in the state of CA, I'm happy to help you navigate further. Contact me!

Sources

· https://selfhelp.courts.ca.gov/probate · https://assessor.lacounty.gov/homeowners/proposition-19 · https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances

· https://www.fidelity.com/wealth-management/inheritance/overview?imm_pid=95142929004&immid=100719_SEA&imm_eid=e32067523&utm_source=MICROSOFT&utm_medium=paid_search&utm_account_id=4194903841&utm_campaign=WMC&utm_content=95142929004&utm_term=inheritance+money&utm_campaign_id=100719&utm_id=9224478454&gclid=7890ffc07210100ce1739709e424a49c&gclsrc=3p.ds& · https://www.nolo.com/legal-encyclopedia/if-you-inherit-home-do-you-qualify-the-home-sale-tax-exclusion.html#:~:text=If%20you%20inherit%20a%20home%20or%20property%2C%20do,from%20the%20stepped-up%20basis%20rules%20for%20inherited%20property

· https://www.boe.ca.gov/prop19/