After a parent, elder family member, or loved one has passed, often they leave behind their home. As they have collected a lifetime of possessions, this can be an overwhelming task for those who inherit. Bridge Beyond offers some advice on how to begin this process.
First of all, this can be a very emotional time. Siblings and close family friends may share the work of cleaning out the house, but the executor has the responsibility and liability for any financial and legal decisions associated with the sale of the home and its contents. If you're the executor, you may need outside help to divide up and clear out the possessions in the home, as well as, determine the financial state of the person that has passed, prepare the house for sale and put it on the market.
Determining the Financial State
First of all, it’s important to understand the financial state of the person that has passed. To keep the homeowner's policy in force, ask the insurance company to change the name of the insured to the estate; that way, it is ensured that property-damage and liability coverage stay in force. Continue to pay the mortgage (if any) and utility bills out of the executor accounts. As soon as possible, change the locks on the house as you never know who might have a key.
Go through the house and look for wallets, checkbooks, financial statements, information about safety-deposit boxes, birth certificates, insurance policies, stock certificates and so on. Unfortunately, many seniors don't keep all their paperwork together and may have filed it in unexpected places. Be thorough and look everywhere and in everything. Some have found $1,100 in cash in a boot, $50,000 life-insurance policy among the sheaves, diamond rings in Band-Aid boxes and stock certificates in folders behind kitchen curtains.
Keep any keys you find in one location so that they can eventually be matched to the proper locks. Check to see if the deceased wrote a will and if so, has it been located. You might want to check with the family lawyer.
Try to find the deceased’s phone book and look to see if you can find any advisors they might have used, e.g. the family accountant, lawyer, insurance agent, real estate agent, etc., which can help you and the family in clearing out, selling the home and settling the estate.
Cleaning out the home
Elderly who grew up during the Great Depression often adopted a "We might need it someday" attitude and may never have thrown anything out. Unfortunately, this can result in a very large amount of items to sort through.
When you start to clear out the home, first of all, see if there are any items specifically willed to certain people by the deceased. Secondly, have immediate family members go through the home. Items which have emotional or monetary value should be set aside. Once family members have retrieved everything they want (or wouldn't want anyone else rummaging through), then focus on the items (often 80%) which no one cares about. To make an overwhelming process easier, start to sort through items one room at a time. For each item, decide whether to keep it, donate it, sell it or trash it.
To dispose of these items can be quite time consuming, so it is important to determine if items need to be disposed of quickly or if you have more time to work on the disposal. Selling items typically take more time than donating. Here are various steps you can take depending on your situation:
- If you have more time, you might want to put certain items up on eBay or sell via consignment shops.
- If you have less time and need a quick disposal, have friends and family come over and offer them to take what they are interested in. You might want to then extend this to neighbors or have a garage sale.
- Call one of your local charities (e.g. Salvation Army or shelters) to see if they would be interested in remaining furniture and other items. If items are donated, the value can be deducted on either the estate's tax return or your own (depending on who inherits the items). Note that the IRS requires you to have a receipt. Check with your accountant about your specific situation.
- Sell the remainder via an estate-sale company. If the value of a home's contents meets the estimator's minimum, the company will advertise and run the sale and remove the leftovers, for a cut of the proceeds (typically one-third, or a minimum of, say, $1,000 to $1,500).
If you live out of town or need additional support, you may prefer to use an agent and professional organizer who specializes in estates to do all or part of the work. They can offer tips for dividing up the mementos and disposing of the items. They can also assist finding other service providers, especially if you are from out of town. Agents will charge their usual sales commission and a per-project fee or hourly rate for managing or performing preparatory work. Most organizers charge $50 to $100 an hour, depending on the size of the project and their level of involvement.
Emotional and Monetary Items
Items that have been willed to family or friends should be distributed appropriately. Remaining emotional and monetary items should be distributed amongst close relatives as appropriately as possible.
If there are doubts about an item's value, hire a personal-property appraiser. To find a professional, consult the American Society of Appraisers, which accredits its members in three main specialties: general contents, antiques and decorative arts, and fine arts (including numerous subspecialties).
If needed, to reassure distant family members and ease the division of property, you might consider cataloging a home's contents with digital photographs that are keyed to a spreadsheet with descriptions of the items and their appraised values.
Preparing the Home for Sale
Once the home as been reclaimed, then its condition can be assessed. As needed, clean, repair and refresh the home, with the goal of de-personalizing it. Create a space that buyers could envision living in themselves. Consider some of the following improvements:
- Hire a cleaning service for an intensive cleaning
- Painting the interior in two contemporary, earth-toned shades
- Pulling up old carpets if there are hardwood floors underneath
- Remove outdated or worn window treatments, and replace them with miniblinds
- Create a welcoming entrance to the home. Hiring a gardener to maintain the garden and put in new flowers and plants can significantly increase the home’s curb appeal.
- Other simple, inexpensive cosmetic updates include painting kitchen cabinets and replacing countertops, faucets and light fixtures.
Death and Real Estate Taxes
The taxable value, or basis, of the home will be "stepped up" to its current market value as of the date of death. Tax treatment of the sale depends on how the house is used after the death. Generally, as long as the estate owns the house and it's vacant, it's treated as an investment property, not a personal residence. Any appreciation in value accrued by the time of sale is taxed as a long-term capital gain, at 15%. If the home's value falls before it is sold, you can claim a tax-saving loss.
You and other beneficiaries of the estate can divide any gains or losses and report them on your personal income-tax returns (on Schedule D). Many families worry that if they hang on to the house too long, they will incur a taxable gain. However, the cost of preparing the house for sale and the agent's commission, which is deducted against proceeds of the sale, often help to offset that.
You will have to file state and federal tax returns for the deceased. A federal estate return will need to be filed if the estate's value exceeds $2 million in 2008 or $3.5 million in 2009. Plus, you may have to file a state estate-tax return. Contact your accountant for your specific situation.
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