We pride ourselves on the care we put into creating solutions for older adults, seniors, and their families. Through our sale-leaseback, we have touched hundreds of families –– helping homeowners access hard-earned home equity while continuing to age comfortably in a familiar environment. But this is just part of the equation, and we understand that many issues families face are far more difficult. Those tasked with selling a parent’s house before death, in particular, are up against an emotionally and financially complex process.
Going about selling a parent’s house before death the right way can be difficult, and the slightest misstep can welcome countless financial and legal burdens. And while we aren’t attorneys, accountants, or financial advisors, we are interested in demystifying complicated processes for all those who find themselves in this position. Continue reading for everything you need to know about selling a parent’s home before death, family caregiving, and alternative pathways that may be right for your family.
When selling an inherited home, families or those in control of their estate have the decision to wait until after the homeowner has passed. Choosing to wait, however, may open you up to unwanted tax liability or force the home to go through a potentially lengthy probate process. Depending on the state and the complexity of the will, probate can take as little as a year, still far too long for many families to spend in limbo. The probate process also incurs its own set of fees, which can quickly erode away any sale proceeds. While money may be the last thing on the mind of families facing the loss of a loved one, finances are still an important consideration for many.
Probate (and the frustration and fees it can bring) aside, the tax liability children may face when selling a parent’s home after death can be the deciding factor. If a parent’s home is sold prior to their death, they may be exempt from substantial capital gains taxes. But should the inherited home be sold after their death, the opposite can be true.
As mentioned above, capital gains taxes are the most significant implication many families face when selling a parent’s asset following their death. The $250,000/$500,000 capital gain tax rule states that if the value of a home increases by $250,000 for a single tax filer or $500,000 for a joint filer in the time since it was purchased, the increase in value may be taxed. Considering a moderate home purchased for $100,000 40 years ago may be going for more than five times that today, this tax may be unavoidable when selling a parent’s home after their death. So, by making the sale prior to their death, you may be preserving tens of thousands in profit.
When you or your parent sell their home prior to their death, you may be able to skirt capital gains taxes in the event that they meet certain criteria. Namely, your parents must have owned the home for two years, the home must have been their principal residence, and they must have occupied the home for at least two out of the last five years. If they lived with you while the property was being rented out, they might miss out on this tax break. Should your parent qualify for these tax breaks, the proceeds from the sale can be gifted to you and any other beneficiaries free of federal tax.
Selling a parent’s house before death may be the best way forward for most families, but there are other options that ensure a parent’s wishes are honored, and the parents' estate is passed to the proper hands.
Another alternative is transferring possession of the home to a trust or establishing a life estate. While these options can be beneficial, they may not work for every family and can become problematic should property disputes arise among the family.
For a full understanding of estate trusts and how these legal tools may work for your unique situation, contact a qualified trust and estate professional.
Despite the countless options outlined above, many will find that selling a parent’s house before death is the best option for all parties involved. But when selling a home under any circumstances, there are preparations that will need to be made to ensure you get the most out of the sale. Should you decide that this pathway is right for you and your family, you’ll have the option of listing with a realtor (or for sale, by owner) or selling to a real estate investment firm. No matter which avenue you choose, here’s how to take on this process.
Despite the increasing popularity of homes sold to investors for cash, listing with a realtor or for sale by owner (FSBO) will likely see a higher sale price — making it the better option for many families.
1. Assess the Home’s Overall State
To understand your options moving forward, your first step will be assessing the overall condition of your parent’s home. If they are older, struggle with mobility issues, or have lived alone for some time, there is a possibility the home will need some cosmetic attention and possibly even extensive renovations. Further, you might find that there is excessive clutter to wade through — lengthening the time it will take to be able to list. Knowing this upfront will allow you to manage expectations, clear out mementos and cherished belongings, and begin exploring next steps.
2. Identify and Tackle Minor Improvements
Whether listing with a realtor or FSBO, you will want to ensure minor renovations have been taken care of. This may include things like repairing or replacing fixtures, touching up paint or adding a fresh coat when needed, tending to overgrown landscaping, or even bigger ticket items like replacing outdated appliances. If you’re unsure of the home’s current value or whether it can sell in its current condition, you may want to opt for a professional home appraisal or home inspection. Depending on what they find, you can brainstorm how to increase your home’s value.
3. Find a Skilled Realtor
If you make the decision to sell your parent’s home for sale by the owner, you should be ready to begin listing your home at this point. However, considering homeowners typically make marginally less from an FSBO sale than with a realtor, you might find that relying on a professional is the way to go. When looking for a realtor, consider three or four different professionals and ensure they are fully aware of the circumstances. The right realtor will be empathetic and sensitive to your situation while working on getting the most out of the sale — making their commission fee well worth it.
4. Determine Whether Larger Renovations Are Needed
With the help of a real estate professional, you can begin to decide whether your parent’s home is in need of more extensive repairs prior to listing. These can include quick-but-potentially-costly fixes like installing energy-efficient appliances or extensive projects like replacing an aging roof. Leveraging knowledge of recent sales in the area and extensive data, a real estate professional will be able to tell you which repairs might be worth it and which will be flat-out necessary to get the absolute most out of the sale. In some cases, you might not have the time to tackle major improvements, and your realtor will be able to recommend quick fixes which will still boost value.
5. Accept an Offer and Begin Moving On
Once you’ve made any necessary improvements and have listed your parent’s home with the help of a professional, it’s important to have a dialogue about expectations from the sale. This should involve your parent(s), your realtor, your siblings and any other beneficiaries. Creating an open dialogue will give you all the best chances of being satisfied with the sale and will allow your realtor to operate confidently and with autonomy when it comes to negotiating. If and when an offer comes in, all involved parties can discuss and decide to take it (or not.)
From there begins the most difficult step of all: beginning to move on. While your parent may still be with you, letting go of a family home filled with memories can be a challenge — don’t fault yourself for struggling to let go.
Those selling a parent’s house before death may do so by listing with an agent or for sale by the owner, but they may also decide to sell to a real estate investor for a number of reasons.
1. Make Sure It’s Right
In the event that the home is structurally sound but in need of deep cosmetic repair, the work needed to get the home ready to list may be too great, given the circumstances. A real estate investor will typically purchase the home as-is (with cash), eliminating the need for repairs on behalf of you, your parent, or your family. While this alternative typically nets a lower sale price, it also removes the possibility of a deal falling through on account of financing.
These benefits may be enticing, but don’t let a heap of cash cloud your or your family’s judgment. Some we-pay-cash companies prey upon older homeowners and desperate families, so be on the lookout for deals that seem too good to be true — they probably are.
2. Clear Out Possessions
One of the biggest advantages of selling a parent’s house to a real estate investor or real estate investment company is that, apart from gathering all personal belongings and clearing out ephemera, little will need to be done to the home. This makes this process far quicker than selling through an agent or for sale by the owner and can save thousands on renovations, repairs, and countless other fees associated with a traditional sale. With that said, investors are looking for the biggest profit margin possible, so selling through an agent or for sale by owner may still end up yielding the greatest profit.
3. Move On
No matter the path you choose, whether listing with a qualified real estate professional, for sale by owner or selling to an investor, the process of moving on poses the greatest challenge. From here, you can begin navigating next steps for your parent(s) and your family and take solace in the fact that a massive (home-sized) weight has been lifted.
Whether you’ve inherited the responsibility of looking after a parent’s estate or you’re educating yourself in anticipation of this duty, Truehold can provide you with helpful resources. Our residential leaseback agreement provides flexibility for families navigating aging parents. Request our free info kit or check out our senior living resources for more information.
1. Nolo. States That Allow Transfer-on-Death Deeds for Real Estate. https://www.nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter5-1.html