You’ve just inherited a house. Now what do you do?
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Legal experts say what comes next largely depends on where it is and the circumstances surrounding the estate, such as whether there is a will, says Thomas R. Simpson Jr., an estate and tax law attorney in southern Maryland.
In Virginia, the District and Maryland, you are required to file some paperwork, but what it is called and how it functions varies. In Maryland, the first thing to do is open an estate proceeding and have a personal representative appointed. In Virginia, this same person is called an executor. Usually a personal representative is named in a will, but if no will exists, the court will name a representative. That designation first goes to a surviving spouse, then to children of the deceased, followed by brothers and sisters, and so on.
Once the personal representative of the estate is named, tax issues fall into place. In Maryland there are two kinds of death taxes, Simpson says, an inheritance tax and an estate tax. The inheritance tax is 10 percent based on the value of the property, but “it only applies to a nonrelated person,” Simpson says. “A spouse, grandchild, brother or parent would be exempt.” The tax has to be paid before the property can be transferred over.
The estate tax, however, is a different story. “The Maryland estate tax is generally going to work out to 16 percent of anything over a million [dollars],” he says.
In the District, there is no inheritance tax. However, there is an estate tax on estates in excess of $1 million.
Virginia, on the other hand, is much easier on the wallets of heirs than Maryland and the District.
Doug Gebert inherited his mother’s house in Fredericksburg when she passed away in 2008. “There’s no inheritance tax in the state of Virginia,” Gerbert says. “You just pay the property taxes as they come.” There also is no estate tax in Virginia.
The biggest issue may be what to do with the house you have inherited. “My experience has been that it depends on the circumstances,” Simpson says. “Generally it seems to be if you have a couple of children who inherit a house, they would most likely be inclined to sell it and divide the money.”
There are, of course, economic considerations. “Some have held off selling because the market was depressed, and used [it] as a rental house,” he says.
Gebert agrees, which is why he has so far kept the house in Fredericksburg, despite living in Baltimore. “The market has continually gone down, but the house is all paid off, so it’s not a big deal,” he says. “I’m just waiting for the market to stabilize.”
