Financial and Legal Responsibilities of Inheriting a House

Inheriting a property ends an era, while simultaneously unveiling a crossroads. With the previous owners of the house gone, the financial and legal responsibilities need to be undertaken by you. However, this task can be quite daunting, considering you don’t inherit a house every day. The most urgent matters which need to be dealt with are definitely the ones that require sliding quite a lot of $100 bills across cash counters. This includes paying taxes, mortgage, property taxes, homeowner insurance, etc. So, refurbishing and renovating the house can wait for now! Also, you might want to talk to a financial advisor as well since it will be tenfold easier to understand the specifics of your financial situation through the words of a professional.

Insurance

Normally, once a house is inherited, the insurance policy is updated while the new owners are granted a time period of around 30 days to find a means of coverage. However, certain insurance companies keep the previous insurance policy valid until it expires, as long as you stay up to date with your payments.

However, if your house goes into probate, then receiving its full ownership will be nearly impossible for some time since the house will be in insurance limbo at the time. Added to that, if you can’t assume ownership of the house, receiving insurance in your name at the time won’t be possible either. This can be especially worrying since this can rob you of ways to cover the house.

However, you can contact your insurance companies and consult them about the various other short-term insurance policies available. Granted, opting for short-term insurance will be pricey but it is the only available option until a new policy is obtained in your name.

Mortgage

Amongst the various problems which are required to be untangled when you inherit a house, mortgage is also one of them. Sorting out mortgage can be easy if the previous owner’s life insurance policy clears it. However, if it doesn’t then it is vital to immediately contact the lender to find what is expected. This is important since if the existing mortgage is not paid then you run the risk of foreclosure. Foreclosure means you could lose your property without any compensation.

Checking the terms of your mortgage might also help you understand what happens in the event of the death of the mortgage holder. However, usually, the payments are frozen while the house is under probate, but interest will still build up during that time period.

Inheritance Tax

Inheritance Tax is a levy on the assets inherited from a deceased person, which depends upon the value of the property and the rest of the deceased’s estate. The general rule for inheritance tax is if the property amounts to more than £325,000, then 40% of everything over that amount needs to be handed over to the taxman.

However, there is an exemption of tax for main residencies inherited by direct descendants. This means if a person has inherited a property formerly belonging to their parents or grandparents, then the inheritance tax bill will be reduced.

Other Outstanding Debts

Typically any kind of debt associated with the older house tends to stick to the owner, which means any outstanding debts will become your problem to deal with. This is why running a title check on the property is favorable since it reveals any previously unknown debts such as an unpaid contractor bill, a second mortgage, etc.