Inheriting A House With A Sibling: A Guide
Katie Ziraldo6-minute read
August 15, 2022
We live in an imperfect world, which means siblings rarely agree on everything. Couple that with the emotional toll of losing a loved one, and tensions may run even higher than normal.
Inheriting a home can be a blessing, but when you’re inheriting that home with a sibling, it can also create some difficult emotional terrain which can lead to both financial and emotional stress for everyone involved.
Unless the will explicitly states otherwise, inheriting a house with siblings means that ownership of the property is distributed equally. The siblings can negotiate whether the house will be sold and the profits divided, whether one will buy out the others’ shares, or whether ownership will continue to be shared.
In this article, we’ll explore the legal ramifications of co-owning property and share tips to make the process enjoyable and equitable for you and your sibling. Let’s dive in!
Using A Partition Suit To Resolve A Conflict
Involving the court is a last resort for most people, but if you and your sibling can’t reach an agreement on what to do with the property, a partition suit may be needed. Partition lawsuits ask the judge to order the home’s sale in order to terminate the co-ownership – but the legal process is rarely that simple.
Typically, the judge will require a mediator – referred to in these scenarios as a “referee” – to mitigate conflicts between the co-owners. This referee is an additional expense on top of what you’ll already have to pay a real estate agent to sell the home. You may even need to hire an accountant to divvy up the proceeds, which can seriously limit your profits.
To avoid these extra costs, try to settle any conflicts with your sibling on your own by using other avenues. Up next are some strategies worth considering.
Sharing Ownership Of The Home
Your first thought upon inheriting a home may be to decide which sibling will remain in ownership – but sharing ownership is possible and can even be enjoyable when the details are properly negotiated.
Dividing Inherited Property Between Siblings
If you’ve decided to continue sharing ownership of the home, you will need to discover the terms under which the house has been left and understand the key differences between tenancy in common and joint tenancy. It’s possible to alter the terms of your ownership to either of these options, so it’s important to know the facts to decide which structure is best for you.
Tenancy In Common
When the title is held as tenants in common, each owner possesses interest in the property, which can be divided equally or unequally. Even if one person owns a higher percentage of the property, all owners have a claim – meaning no one individual can claim ownership over it.
Each owner can sell or transfer their share in the property to another person without needing their co-owner’s approval. If a co-owner passes away, their interest is automatically passed to their heirs.
Unlike tenancy in common, joint tenancy means that all co-owners possess equal shares – or an equal amount of interest – in the property. Ownership can’t be passed down to heirs because, in the event of a co-owner’s death, the sibling’s share of ownership is automatically passed to the surviving co-owner. Shares in the property can’t be sold without the consent of all co-owners.
Like tenancy in common, joint tenancy allows you to transfer your shares to another person – however, when this happens, that person is unable to enter the joint tenancy and instead enters into a tenancy in common ownership structure with the remaining co-owner, terminating the joint tenancy.
Renting The Inherited House And Splitting The Profits
If neither sibling wants to sell the family home, renting it out could be a positive, profitable approach for everyone involved. In fact, it could even be possible for one or more siblings to live in the house alongside any renters.
Structuring A Buyout
Most properties are inherited evenly, so unless otherwise stated, you and your sibling likely have 50/50 ownership of the home. If one sibling wants to buy out the other, this means they would need to finance half of the home’s value.
The most important part of this process is having a fair home appraisal – otherwise known as a property valuation – which will determine how much the home is worth and therefore how much you would need to pay to buy out your co-owner. Once the home’s value is determined, you can pay your sibling for their share and transfer the deed into your name.
Can You Refinance An Inherited Property To Buy Out Other Heirs?
Conventional lenders typically don’t offer this type of refinancing – but hard money lenders are also an option. A hard money loan is a short-term loan provided by a nontraditional lender – such as individuals and private companies – that accepts property or an asset as collateral.
These loans typically have a fast, less-strict approval process that makes them a convenient option for people who need to move quickly. But like with traditional mortgages, keep in mind that your property is held as collateral on the loan, which means defaulting may result in the lender taking ownership of the home.
Selling And Dividing The Profits
If you and your sibling have agreed to sell the home, the next step is a professional appraisal to determine the market value of the property, which will be crucial when it comes time to divide the profits of the sale.
You must also determine who in or outside of your family will have the right of first refusal, which is a clause in a lease or contract that allows the holder to transact with other contracting parties before anyone else can.
More simply put, this would mean an interested buyer has the indisputable right to be the first party to put an offer on the property when it’s listed on the market if they choose. And if another party also expresses interest, the buyer with right of first refusal has the option to purchase the property over the other interested party or decline the opportunity and allow the seller to consider other offers.
Will You Have To Pay The Capital Gains Tax?
Capital gains tax is something you must pay when you sell an asset that has increased in value since the time you bought it. This means if you sell your home quickly enough after inheriting it, you may not need to pay capital gains tax, as the home’s value should not have changed.
3 Tips For Sharing A Vacation Home
Sharing a vacation home opens a unique set of issues that typically don’t apply with a primary residence. The main considerations are the more common desire for multiple people to use this property, irregular visits from multiple parties, and questions of whether it should be rented out to others.
Although they aren’t required actions, the sections below represent the possible steps you could take to make sharing a vacation home as simple as possible.
Create An Expense Account
As a co-owner, each sibling is responsible for their share of the property expenses. Although it’s not always a necessity, creating an expense account can be a good way to ensure all co-owners are contributing equally for any mortgage payments, maintenance, improvements or renovations on the home. An expense account will also help you track your money and stay organized, particularly if you’re receiving rental income on the home.
Hire A Property Manager
This may be an especially attractive option if you don’t live near the property. Having a dedicated property manager means having one individual in charge of upkeep, repairs and communicating with renters, if applicable. The expense of the property manager is typically split between the siblings.
Form A Governance Board
This option is mostly relevant if there are multiple, ever-expanding stakes in the property via heirs. For example, if two siblings share equal ownership of the property – and both siblings have two children whom they plan to gift their shares to – the next generation will split the ownership four ways.
The more co-owners, the more potential there is for disagreements on what to do with the property. Creating a governance board – which functions similarly to a condo board – can streamline decision making and take some pressure off the family.
General Tips To Navigate The Process
It’s no secret that siblings don’t always see eye to eye. Even if you think you and your sibling are on the same page about your inherited house or property, it’s possible for one family member to change their mind and throw a wrench in the plan. To avoid bumps in the road – and to keep your sibling relationship as positive as possible – try implementing these tips:
- Document all agreements on paper.
- Consult with a lawyer and other professionals.
- Consult with friends who can give you a sympathetic ear and objective advice.
- Take some time to cool off if something gets your emotions running high, and come back to the conversation ready to negotiate.
The Bottom Line
Inherited homes often come with a lot of sentimental value – which may lead to siblings disagreeing on what to do with the property. If you’ve recently inherited a house with one or more siblings, it’s important to understand your options so you can advocate for the well-being of everyone involved.
If you’re interested in selling a house, read more in our Learning Center and take control of your options.
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