How to handle inheritance- need some guidance

4 Replies

So I’m in unfamiliar territory here in regards to an inheritance, so I figured who better to ask than the experts here. Here’s my situation:

Unfortunately my father passed away a few weeks ago, and my sister and I are the two beneficiaries of his estate. No probate court, no other beneficiaries, just her and I. My sister (who is the executor) doesn’t want the house, and myself being a flipper for the last 15 years or so (as well as looking to add another rental to my portfolio), thought it would be great to just cash her out her half of the equity and keep the house as a rental. But, in order to do that, I would probably have to do a cash-out refi.

My dad owes about $125k and the house is valued around $290k, so if I CO-refi'd I would only need to pull about $60k (and the rest I'd owe her i'd pay her cash out of pocket). I would still have a ton of equity, so I'm fine with it. But can I (or rather, should I) refinance it under my newly formed LLC, or just go conventional and quit claim it to my LLC? Personally, I'd rather keep it out of my name from the get-go, but i have yet to do any business through my LLC, so doing it this way has me a bit confused.

Another option is that I can “possibly” assume the loan as-is. I’d have to have his current lender “approve” me, but they told me that doing this would essentially just remove my dads name off the loan and my name would go on it. Same loan number, same terms, same payments, etc...

I’ve never heard of this, but it does sound enticing as his interest rate is in the low 3’s. Doing it this way though, I’d have to come up with even more cash out of pocket, and I don’t want to leave myself cash poor either.

My sister should have all the required paperwork to be able to put me on title next week. But this where I'm stumped. What should my next step be? Who's name should she put on title? My name? My LLC? I was also told by my CPA that I need to "reset basis" for future tax issues (for when I sell it sometime in the future), so that's another question I have no answer to. I have also been advised not to quit claim it, but do a warranty deed instead. Totally clueless there...

Anybody have any experience in something like this? Im really stuck on how to proceed, and the attorney I consulted with today wasn’t able to paint any sort of clear picture for what I should do. But I did snag a pretty sweet pen. Lol.

Any help, suggestions or recommendations would be greatly appreciated. Thanks!

Originally posted by @Account Closed :

So I’m in unfamiliar territory here in regards to an inheritance, so I figured who better to ask than the experts here. Here’s my situation:

Unfortunately my father passed away a few weeks ago, and my sister and I are the two beneficiaries of his estate. No probate court, no other beneficiaries, just her and I. My sister (who is the executor) doesn’t want the house, and myself being a flipper for the last 15 years or so (as well as looking to add another rental to my portfolio), thought it would be great to just cash her out her half of the equity and keep the house as a rental. But, in order to do that, I would probably have to do a cash-out refi.

My dad owes about $125k and the house is valued around $290k, so if I CO-refi'd I would only need to pull about $60k (and the rest I'd owe her i'd pay her cash out of pocket). I would still have a ton of equity, so I'm fine with it. But can I (or rather, should I) refinance it under my newly formed LLC, or just go conventional and quit claim it to my LLC? Personally, I'd rather keep it out of my name from the get-go, but i have yet to do any business through my LLC, so doing it this way has me a bit confused.

Another option is that I can “possibly” assume the loan as-is. I’d have to have his current lender “approve” me, but they told me that doing this would essentially just remove my dads name off the loan and my name would go on it. Same loan number, same terms, same payments, etc...

I’ve never heard of this, but it does sound enticing as his interest rate is in the low 3’s. Doing it this way though, I’d have to come up with even more cash out of pocket, and I don’t want to leave myself cash poor either.

My sister should have all the required paperwork to be able to put me on title next week. But this where I'm stumped. What should my next step be? Who's name should she put on title? My name? My LLC? I was also told by my CPA that I need to "reset basis" for future tax issues (for when I sell it sometime in the future), so that's another question I have no answer to. I have also been advised not to quit claim it, but do a warranty deed instead. Totally clueless there...

Anybody have any experience in something like this? Im really stuck on how to proceed, and the attorney I consulted with today wasn’t able to paint any sort of clear picture for what I should do. But I did snag a pretty sweet pen. Lol.

Any help, suggestions or recommendations would be greatly appreciated. Thanks!

 Lots of details, so little time ;-) It's a common and fairly simple problem.

Okay first, sorry about your loss. 

If there was a will, it must be followed. Talk to a Title company and find out if sis can get clear title. Has she been declared the executrix by the court or just between you two?

Have a title report run. Have an appraisal done and hang onto it. Your stepped up cost basis is what you are taxed on in the future and the appraisal helps to establish current value. Someone has to keep making the mortgage payment or they will take it to foreclosure and sell the house. If the bank will approve you for assuming the loan, fine. But many times they won't and you are stuck. A newly formed LLC can't get financing unless it is a non-owner occupied house and that comes with a higher interest rate. I strongly suggest a Warranty Deed over a Quit Claim Deed but that assumes your sister's executrix position has been approved by the probate court. You have many options but need to know if sis has been declared executrix first.

When my family member died, the PR filed a death certificate at the county recorder's.  We didn't have to formally 
qualify for the mortgage.  Please look at this NOLO article. 

https://www.nolo.com/legal-encyclopedia/taking-over-the-mortgage-when-your-loved-one-dies.html

Originally posted by @Account Closed :

So I’m in unfamiliar territory here in regards to an inheritance, so I figured who better to ask than the experts here. Here’s my situation:

Unfortunately my father passed away a few weeks ago, and my sister and I are the two beneficiaries of his estate. No probate court, no other beneficiaries, just her and I. My sister (who is the executor) doesn’t want the house, and myself being a flipper for the last 15 years or so (as well as looking to add another rental to my portfolio), thought it would be great to just cash her out her half of the equity and keep the house as a rental. But, in order to do that, I would probably have to do a cash-out refi.

My dad owes about $125k and the house is valued around $290k, so if I CO-refi'd I would only need to pull about $60k (and the rest I'd owe her i'd pay her cash out of pocket). I would still have a ton of equity, so I'm fine with it. But can I (or rather, should I) refinance it under my newly formed LLC, or just go conventional and quit claim it to my LLC? Personally, I'd rather keep it out of my name from the get-go, but i have yet to do any business through my LLC, so doing it this way has me a bit confused.

Another option is that I can “possibly” assume the loan as-is. I’d have to have his current lender “approve” me, but they told me that doing this would essentially just remove my dads name off the loan and my name would go on it. Same loan number, same terms, same payments, etc...

I’ve never heard of this, but it does sound enticing as his interest rate is in the low 3’s. Doing it this way though, I’d have to come up with even more cash out of pocket, and I don’t want to leave myself cash poor either.

My sister should have all the required paperwork to be able to put me on title next week. But this where I'm stumped. What should my next step be? Who's name should she put on title? My name? My LLC? I was also told by my CPA that I need to "reset basis" for future tax issues (for when I sell it sometime in the future), so that's another question I have no answer to. I have also been advised not to quit claim it, but do a warranty deed instead. Totally clueless there...

Anybody have any experience in something like this? Im really stuck on how to proceed, and the attorney I consulted with today wasn’t able to paint any sort of clear picture for what I should do. But I did snag a pretty sweet pen. Lol.

Any help, suggestions or recommendations would be greatly appreciated. Thanks!

 Regarding the reset of the basis, the value of the house that is recorded for estate tax purpose will be your new basis. As mentioned above, make sure the appraisal is done to document the appraised value for the estate tax and for your own basis establishment purpose. No matter where and how the property ends up, you will get the stepped-up basis that will give you higher depreciation expenses if you keep this as rental or lower gain if you ever sell it. 

Thank you for the responses! So yes Account Closed I am curious what the process was for you. Obviously an appraisal needs to be done, and while the article you referred to really opened my eyes, the mortgage servicer seems to know nothing about the rule. They are saying that I have to basically refinance it in order for me to assume the loan. And of course they won't lend to a newly formed LLC on a SFR. I explained that no modifications would need to be done, and that the cash flow would be significant, not to mention the 60% equity there would be. But I may potentially have an issue if it comes down to refinancing due to timing of this whole thing (of course nobody is ready for a parent to die...) but because I am right in the middle of flipping another house, and although I paid cash for it, I have a bunch of "stuff" that may show up on a credit report (the HELOC I use for rehab funds, Lowe's, Home Depot, etc.) and am afraid my DTI might be getting tight. But, let's assume they have an epiphany and I am able to just assume the loan as-is, could I do a warranty deed in the name of my LLC? Seeing as though I wouldn't have to qualify, wouldn't it make sense seeing that it is usually very hard to get financed for anything with a newly formed LLC? This way, my LLC would have equity behind it, show cash flow, which would potentially make getting financing easier the next go-round. Your thoughts? Thanks!