Book a consultation
QUESTIONS?
Send us a message
CALL US TOLL-FREE:
1.844.445.3422
elder persons hand passing down inheritance to a younger hand

How to manage disputes and taxes when selling inherited assets

by Legacy Plan
February 13, 2024

Selling an inherited property can be an endeavor laden with both legal intricacies and delicate dynamics among heirs. At the heart of this process is the need to balance legal obligations with the often-complex relationships within a family or among beneficiaries.

When an individual inherits property, whether through a last will and testament, trust or state succession laws, they step into a web of legal considerations. These range from determining the property’s title and ownership structure to understanding tax implications and adhering to state-specific inheritance laws. For instance, the nature of ownership – whether it's joint tenancy, tenancy in common or sole ownership – can significantly alter the course of action for selling the property. Each ownership type comes with its set of rules about how property can be sold and how proceeds are divided.

The decision to sell an inherited property is rarely a solitary one and often involves multiple heirs. This is where the dynamics among heirs come into sharp focus. Relationships between relatives can be complex and fraught with historical baggage, making consensus challenging. The emotional ties to an inherited property, such as a family home, add another layer of complexity. Memories, sentiments and a sense of legacy often intertwined with such properties can lead to differing opinions on whether to sell, keep or use the property in another way.

The decision-making process is further complicated by legal obligations. These may include paying off any existing debts or liens on the property, addressing estate or inheritance taxes and navigating the probate process if applicable. Additionally, if the property was not specifically bequeathed to a particular individual but is part of a larger estate, the executor, personal representative or administrator of the estate plays a crucial role in deciding the property’s fate, subject to the approval of the heirs or the court.

That’s why selling inherited property involves a careful balancing act. Heirs must navigate legal requirements and tax implications while managing personal relationships and emotional attachments. Understanding these various elements is crucial to making informed, harmonious decisions that respect both the legal aspects and the familial bonds involved in such transactions.

Understanding inheritance and property ownership

Inheritance is a critical aspect of estate planning, where property and other assets are legally transferred to heirs upon a person’s death. This process can vary significantly based on whether the deceased had a legally valid will or estate plan in place, or if the distribution of assets falls under state intestacy laws in the absence of a will.

When a will or estate plan is present, it generally outlines specific instructions on how the deceased's assets should be distributed. However, in cases where no will exists intestacy laws typically prioritize spouses, children and other close relatives, but the exact hierarchy and distribution can vary from one state to another.

Booklet opening animation of our free requestable booklet 'Joint Tenancy and Estate Planning'

The type of property ownership significantly impacts how an inherited property can be sold or transferred. Two common forms of property ownership are joint tenancy and tenancy in common. In joint tenancy, co-owners have equal shares of the property with a right of survivorship, meaning that upon the death of one joint tenant, their share automatically passes to the surviving joint tenant(s). This transfer occurs outside of the will, making joint tenancy a popular choice for spouses.

On the other hand, tenancy in common allows individuals to own specific portions of a property, which can be unequal, and these shares do not necessarily transfer to other co-owners upon death. Instead, each share can be bequeathed to an heir as outlined in a will or through intestacy laws. This form of ownership is common among non-married co-owners, like siblings or business partners.

Wills and estate plans are not just documents that dictate who inherits what; they are crucial tools for expressing the deceased’s wishes and managing potential conflicts among heirs. A well-structured will can clearly state the disposition of properties, including whether they should be sold, maintained or transferred to specific individuals. It can also set conditions or trusts to manage these assets for certain purposes or beneficiaries.

Understanding inheritance and property ownership is pivotal in the context of selling an inherited property. Heirs must be aware of the type of ownership, the contents of the will or estate plan and the relevant state laws. This knowledge is essential for making informed decisions about the property and ensuring a smooth transfer or sale process.

Scenarios where unanimous agreement is required

In the realm of inherited property, there are several circumstances where the unanimous agreement of all heirs is essential for proceeding with a sale. This requirement for consensus is crucial in maintaining legal and relational harmony among the parties involved.

One of the most common scenarios necessitating unanimous agreement is joint tenancy. In a joint tenancy arrangement, property is co-owned by multiple individuals, each holding an equal share. This form of ownership includes a right of survivorship, meaning that upon the death of one tenant, their share automatically passes to the surviving co-owners. To sell a property held in joint tenancy, all surviving tenants must agree to the sale. This requirement ensures that each co-owner’s rights are respected and that no individual can unilaterally make decisions that affect the whole.

group of hands holding thumbs up

Another scenario where unanimous agreement is needed is when a property is inherited without a will, known as intestate succession. In such cases, state laws determine how the property is divided among heirs. Typically, all identified heirs must agree on any decision regarding the property, including its sale. This requirement can be complex, especially when multiple heirs are involved, as it requires coordination and agreement among all parties.

Additionally, specific family agreements or trusts may also stipulate the need for unanimous decision-making regarding the sale of inherited property. For instance, a trust established by the deceased might dictate that the property can only be sold with the agreement of all beneficiaries. These agreements are legally binding and ensure that the intentions of the trust or will are honored, often reflecting the deceased’s desire for fairness and unity among their heirs.

In all these cases, the requirement for unanimous agreement among heirs is not just a legal formality but also a mechanism to safeguard the interests and rights of all parties involved. It helps prevent disputes and ensures that any decision made regarding the property is mutually acceptable. However, achieving this consensus can be challenging, particularly in families with complex dynamics or when heirs have differing views on the property's future. This underscores the importance of clear communication, negotiation, and, in some instances, the intervention of legal or mediation services to reach an agreement that is agreeable to all involved.

Scenarios where majority or partial agreement is sufficient

In the process of selling inherited property, there are certain situations where obtaining a majority or partial agreement from the heirs is sufficient to move forward. This flexibility can simplify the sale process, especially in more complex inheritance situations.

One of the most common scenarios where a majority or partial agreement is adequate involves properties owned under a tenants in common arrangement. In such arrangements, each heir owns a specific, undivided share of the property. Unlike joint tenancy, there is no right of survivorship in tenants in common; each share can be bequeathed independently. This structure allows individual heirs the liberty to sell or dispose of their portion of the property without needing consent from the other co-owners. For instance, if an heir wishes to liquidate their share for personal reasons, they have the legal right to do so, even if other heirs prefer to retain their portions of the property.

However, when it comes to selling the entire property, majority rule can often apply. This means that if the majority of the heirs agree to sell the property, they may proceed, even if some heirs are opposed. The legal basis for this majority decision-making often depends on state laws and the specifics of the property’s ownership structure. The proceeds from such a sale are then typically divided among the heirs according to their ownership shares.

In some cases, legal provisions and mechanisms are available to facilitate the sale in situations of dispute or deadlock among heirs. For example, if a group of heirs holding the majority of the property's shares wants to sell, but a minority is against the sale, the majority may seek legal avenues such as a partition lawsuit. A partition lawsuit can compel the sale of the property, with the court overseeing the process to ensure fairness in the distribution of proceeds among all heirs.

Legal processes to resolve disputes

When it comes to resolving disputes among heirs over the sale of inherited property, there are several legal avenues that can be pursued to find a resolution. These methods range from amicable negotiations to more formal legal proceedings, each offering a different approach to conflict resolution.

  • Mediation and negotiation. These are often the first steps in attempting to resolve disputes among heirs. Mediation involves a neutral third-party mediator who helps facilitate discussion and compromise among the disputing parties. This process is less formal and often less adversarial than going to court. It allows heirs to openly discuss their concerns and interests, and work towards a mutually acceptable solution. Negotiation is similar but usually doesn't involve a third-party mediator. Instead, heirs directly engage with each other to reach an agreement. Both mediation and negotiation can preserve family relationships and are generally more cost-effective and faster than litigation.

  • Partition lawsuits. In cases where mediation or negotiation fails to resolve the dispute, heirs may resort to a partition lawsuit. This legal action is used when one or more heirs want to sell the property, but others do not. The court can order the property to be divided, if feasible, or sold with the proceeds distributed among the heirs according to their ownership interests. Partition lawsuits can be time-consuming and costly, and they may lead to strained family relations, so they are often considered a last resort.

  • Role of probate courts. The probate court plays a crucial role in overseeing the estate settlement process, including the resolution of disputes related to inherited property. If the property is part of a probated estate, the court may need to approve its sale, especially if the estate is being administered by a court-appointed executor or administrator. In cases of disputes, the probate court can make decisions based on the estate's documents, state laws and the best interests of all parties involved.

  • Legal representation. In all these scenarios, seeking legal representation is advisable. Lawyers experienced in estate planning can provide valuable guidance and representation, ensuring the heirs' rights are protected and helping navigate the complexities of estate laws.

  • Financial implications. It's important to consider the financial implications of legal disputes. Legal processes can incur significant costs, which might be borne by the estate or the individual heirs. Additionally, prolonged disputes can delay the distribution of assets, affecting all beneficiaries.

Resolving disputes among heirs over the sale of inherited property requires careful consideration of the available legal options. Each method has its benefits and drawbacks, and the choice largely depends on the specific circumstances of the dispute, the dynamics among the heirs, and the overall objective of the estate settlement.

Financial and tax considerations

When dealing with the sale of inherited property, several financial and tax considerations play a crucial role in the decision-making process. Understanding these aspects is essential for heirs to manage their expectations and plan accordingly.

One of the primary financial considerations in the sale of inherited property is the potential capital gains tax. This tax is applied to the profit made from selling an asset. In the case of inherited property, the tax is calculated based on the difference between the selling price and the property's value at the time of the original owner's death, known as the “stepped-up basis.” If the property has increased in value since it was inherited, the heirs may owe capital gains tax on the difference. The exact rate of this tax can vary depending on factors such as the duration of ownership and the heir's income tax bracket.

wooden blaocks stacked in pyramid with 'tax' on the top

The proceeds from the sale of the inherited property are typically distributed among the heirs according to their ownership shares, as outlined in the will or estate plan. If the property was owned as “tenants in common,” each heir is entitled to a portion of the proceeds proportional to their share of the property. However, if the property was held in a trust or under joint tenancy, the distribution of proceeds might follow different rules specified in the trust agreement or joint tenancy arrangement.

The sale of inherited property can also affect inheritance and estate taxes. These taxes are levied on the value of the property that is passed on to heirs after the original owner's death. The applicable rates and exemptions for these taxes vary significantly based on jurisdiction and the total value of the estate. In some regions, estate taxes are imposed at the state level, while inheritance taxes are levied directly on the beneficiaries. It's important for heirs to understand the tax implications in their specific location to adequately prepare for any financial obligations.

There may be certain exemptions and deductions available that can reduce the tax burden associated with the sale of inherited property. For instance, some jurisdictions offer tax relief for selling a primary residence, even if it's inherited. Heirs should explore all possible tax advantages to minimize their liabilities.

Navigating the financial and tax considerations of selling inherited property requires a thorough understanding of various factors, including capital gains tax, the distribution method of sale proceeds, and the impact on inheritance and estate taxes. Heirs should seek professional guidance to ensure compliance with tax laws and to make informed decisions that align with their financial goals.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

Phone - 844.445.3422
Email - info@legacyassuranceplan.com
25 common estate planning mistakes booklet

Don't make estate planning mistakes. Avoid common mistakes with our free guide,
"25 Common Estate Planning Mistakes"



Legacy Assurance Plan Shield Logo
Subscribe to Our Monthly Newsletter!

We won't share your email, and we make it easy to unsubscribe!