When it Comes to Inherited Family Homes, More People Are Cashing Out — But Are Keeping Vacation Properties

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Deciding what to do with an inherited house is becoming less complicated as high home prices, taxes and maintenance costs are encouraging more beneficiaries to sell, according to experts.

As the Wall Street Journal reports, a recent Charles Schwab study found that more than 75% of parents plan on willing their home to their children upon their death. In turn, nearly 70% of those heirs intend on selling their inheritance rather than keeping it for themselves or generating passive income by taking in tenants.  

For younger generations, the reasons for selling a family home are numerous and outweigh the emotional ties one has to it. More people are realizing that while memories are always worth preserving, cashing out in these economically concerning times might make more sense than living in an outdated or large inherited home that will require a lot of renovations and updating.

As Paige Wilbur, Wells Fargo’s head of estate services, stated, “While Mom and Dad’s home might be nice, the children may not want to live in it and would consider it too costly to renovate to their style.”

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The Burden of Taxes and Mortgages

There are ways a discerning estate planning attorney can diminish the impact taxes will have on new homeowners, but inheritors are increasingly wary of the taxes for which they will be responsible. Taking on homeowner association or condo fees and city and property taxes might be too much of a burden for the average inheritor.

So might be accepting whatever existing mortgage is tied to the inherited residence. Despite the death of the mortgage borrower, the mortgage on the inherited home still needs to be repaid or the heir(s) may be charged late payment fees and risk foreclosure if payments become defaulted.

Like any financial decision, it pays to remain cool and detached when deciding what to do with an inherited home, despite it being a possession fraught with memories.

“Many financial decisions today are very rate-dependent, so remove emotions or risk doing something you may later regret,” says Jeff Fishman, a financial adviser from Los Angeles.

Heirs Holding on to Vacation Homes

While more heirs and recipients are making the move to sell off homes inherited by loved ones, they remain more committed to keeping inherited second or vacation homes in the family, especially if they are located in attractive locales and despite many of the same taxes, unexpected repairs and debts associated to them.

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And then there are the sibling squabbles that often result from inherited vacation homes. According to the do-it-yourself legal advice site Nolo, more than 80% of vacation homes are owned mortgage-free and to heirs, using the cottage or holiday home is more important than profiting from its sale.

Fishman notes that if more than one family member is inheriting a vacation house, there needs to be a way to split all taxes and costs equitably and create a schedule to use the inheritance that is to everyone’s interest.

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