How to split up the willed family home |
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That means that if your state's homestead exemption is $50,000 and your second parent died $75,000 in debt with no other assets, creditors could attach liens to the home to recover the $25,000 above the exemption.
State laws vary widely and contain many exceptions to the homestead exemption, so it's best to consult an attorney for details. Suffice to say, you should tread carefully when spending estate money on the old family home.
"Essentially, it's going to be your home because you're the heir," says Alper. "The creditors can't get it, but you can't ask the creditors to diminish the estate assets that they can recover upon to fix your house."
Seek an equitable, fair solution
When a family home is involved, you will likely need a probate court order to sell the house or transfer the deed. In most states, you also will be required to notify all heirs and other interested parties if and when you plan to sell.
And you'll be required to get an appraisal before proceeding with a sale. Remember: It's your fiduciary duty to get a fair market price.
"You can't just sell it to your brother-in-law,"
says Randolph. "(The transaction) has to be at arm's length
and you have to have documentation for why you sold it for a certain
amount."
Deciding the ultimate fate of the family home is the
tough part, says Ralph Neuzil of Neuzil, Sanderson, Sigafoose &
Flynn in Iowa City, Iowa, who has been an estate attorney for 50
years.
"What do we do if everybody wants the homestead? Or if nobody wants the homestead? Anyone can agree to anything as long as they want to. It's when somebody thinks they're getting the short end of the stick that they cause trouble," he says.
Some common scenarios: One sibling has lived in the
home taking care of the parent and wants to stay, but can't qualify
for a mortgage to buy out the others. Or the caregiver may have
a financial windfall from the deceased outside of the will -- perhaps
in jointly held property, bank certificates or as the life insurance
beneficiary -- that causes dissension among siblings, who then resent
having to give him an equal portion of the estate. And sometimes
a sibling with greater wealth will have an unfair advantage to acquire
the home in a court-ordered auction or sale.
Unless a single heir is named to inherit the home, the siblings are free to work out any sort of mutually agreeable solution. If cash is an obstacle, for instance, they might even consider payments over time.
But once they agree on a plan, they will still need court approval before distributing the assets. "In my 50 years of experience, when a family agreed on something, I have never had the court deny it. Ever," says Neuzil.
On the other hand, if the family can't agree, tempers
and legal fees tend to rise exponentially.
"My old law professor used to tell heirs that
if you don't get along, your lawyer will become an heir to the estate,
which was probably not the intent," Neuzil says.
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