Does inherited real property come with a catch?

Readers may be familiar with the estate tax exemption. Yet even if an estate is valued below that threshold, there may be special considerations when it comes to transferring real estate. Today’s post focuses on some of the issues that beneficiaries may face when they inherit real property.

First, a beneficiary may question whether he or she should keep the decedent’s mortgage. That question can come with a timetable if the mortgage documents include a due-on-sale clause. Essentially, such a provision states that the entire mortgage becomes immediately due in the event of a transfer. However, there is an exception in the case of beneficiaries who are relatives or who were joint tenants on the deed of the property. Under federal law, a due-on-sale clause cannot be enforced against those beneficiaries.

For beneficiaries who aren’t protected against the due-on-sale clause, however, the need to act quickly may come with a 30-day timetable. To avoid foreclosure, a beneficiary facing this dilemma might explore refinancing, renting or even selling the property.

With the help of an estate-planning attorney, a transfer of real estate to a beneficiary who is not a relative can be planned strategically. As hinted above, naming that beneficiary as a joint tenant will allow him or her to inherit the real estate without court involvement. In fact, a deed change may even be unnecessary, since the property was already titled in that beneficiary’s name.

However, individuals may have concerns about titling their property as a joint tenancy, especially if they become incapacitated. For that reason, it may be wiser to title the real property in a trust. An attorney can explain these options in greater detail.

Source: The Huffington Post, “10 Surprises When Inheriting Real Estate,” Andrew Lieb, Oct. 31, 2014