A lifetime of memories.
That’s what most people envision when they think about letting go of their parents’ home — especially if they’ve also spent time living under the same roof.
Whether your parents are still living or have passed on, it’s hard — really hard! — to get past the emotion. It’s overwhelming. It’s sad. It will bring up a ton of feelings. But the stark reality is, for most of the people reading this article, you need to think, not feel, your way through this process.
That’s the goal of this guide — to help you understand all of the elements that will come into play when you’re charged with helping your mother and/or father sell their home, before or after their death.
Selling a house is a major transaction, probably one of the biggest you’ll undertake in your life. It can be complicated by the fact that your parent(s), brother(s), and/or sister(s) may have their own opinions about how to move forward.
While every situation is different, this guide will introduce you to several common issues that come up when preparing to sell your parents’ home.
Just take it step by step, and know that there are resources to assist you — including us! If you’ve got questions right away, shoot us an email or text or call us today to set up a time to meet. We are always happy to discuss this process anytime.
Before We Dive In…
Selling a house on behalf of another, or helping an aging loved one with the sale of their house is challenging. There are usually a lot of moving pieces, not to mention a lot of actual STUFF to go through.
And when you add in the difficulty of grieving a recent loss with disagreeing family members… then sprinkle with emotional meltdowns, you’ve got a potentially volatile situation on your hands.
That’s why we stress the more you can do before your mom or dad pass away, the easier the entire process will be.
Before we dig too deep, I should remind you that we are not attorneys and we are not giving legal advice.
This article is divided into four categories: Lawyer Stuff, Tax Stuff, Who Handles What, and Emotional Elements. In our experience, each of these sections is critical, and can cause a ton of aggravation, stress, and discord among families if clear plans aren’t laid out before a parent passes away.
As uncomfortable as it may be to sit down with Mom and/or Dad and have the tough conversations about planning for their death, it’s so much easier to get their wishes in writing NOW, rather than struggling to retroactively determine their desires after they’ve passed away.
Losing a parent is hard enough without having to guess, argue, and even fight with siblings and other family members over “What Mom really would have wanted.” The only solution is to get it in writing NOW so you don’t have to guess later.
Part One: Lawyer Stuff.
Since we are not attorneys, we reached out to local attorney Will Torhorst, whom we’ve worked with in the past when we’ve needed real estate related legal advice. He can help you with any legal questions you may have when it comes to this subject!
As much as we’d like to proceed through life without having to enlist the services of an attorney, it’s almost impossible — especially when we’re dealing with someone else’s real estate.
In certain circumstances, you’re going to have to deal with lawyers, which is why this first section is dedicated entirely to legal issues: those elements where you’re going to need to consult with an attorney. Let’s take them one at a time.
Generally speaking, estate planning is the process of creating a plan for the disbursement of one’s estate after their death. There are a multitude of important reasons to create a personalized estate plan.
Here is a list of questions to ask yourself, or to give to your parents, to help you determine if considering an estate plan is something you should add to your, or encourage your parents to add to their, to-do list:
- If I have minor children, do I have a preference for who should be their guardian and/or custodian until they become adults?
- Have there been any additions or changes in the family? Additional children or grandchildren that aren’t considered in the current plan?
- Has a member of the family died?
- Has there been a marriage or divorce that changes who will inherit the estate?
- Should I change the person responsible for paying my bills if I die or become incapacitated?
- Who do I want to make medical decisions for me in the event I am unable to do so for myself? Can I still rely on, or have my feelings changed about the person(s) I’ve named to make my medical decisions, and/or administer my estate?
- Have I loaned money to any of my friends of someone in my family? Is there a promissory note? Do I want to address this debt in my Estate Plan?
- Have I acquired property in another state?
- Do my assets add up to more than $2.4 million? And, if I am married, does my current estate plan shelter the first $2.4 million from MN estate taxes?
- Do I own a business interest in a MN company? Do I understand how that business interest will be passed on at my death? Does that company own Real Estate in MN or any other state?
- Do I want to make any provision for future education or medical expenses for a particular family member?
- Do any of the beneficiaries of my will have a physical or mental disability?
- Do I expect there will be serious disagreement between my family members as a result of my incapacitation, disability, or death?
- Is there any particular member of my family that will require financial support from my estate?
- Have my assets either significantly increased or decreased since the last time I made changes to my estate plan?
- Do I want to consider making gifts of $15,000 or more to any of my family members now because either they currently need it, or to avoid or decrease taxes at your death?
- Has an organization, charitable or otherwise, impacted your life in a way that you’d like to remember the organization with a gift at your death?
- Do I see the need to plan for a nursing home or long-term care assistance? And if so, do I want to preserve my assets to pay for those services, or try to effectively transfer my wealth before its time to apply for such services?
- I’ve heard a lot about Trust planning, but does a Trust make sense given my circumstances?
- Has it been a few years since I’ve reviewed or updated the beneficiary designations on all of my financial accounts, retirement accounts and life insurance?
If “Yes” was the answer to any of these questions, you or your parents have a good reason to talk to an experienced estate planning attorney. We’d be happy to refer you to one we trust.
You can probably already see the advantages to designating beforehand what your parents want to have happen with their property and estate after they pass away. Having an attorney draft a personalized estate plan is the best way to achieve the peace of mind that their affairs are in order, their wishes will be followed, and the legacy of their estate is in the right hands.
Proper estate planning usually makes everything else — the selling of the house, the division of assets, etc. — so much easier because it has the effect of answering the question of “is this what mom and/or dad would’ve wanted?” An estate plan can also inform everyone who should be responsible for what kinds of decisions, hopefully squashing power struggles and issues of authority before they even arise.
Common Estate Planning Tools
Trusts – There are many different types of trusts — more than we can possibly explain here! — but the important thing to know is that they are a legally binding estate planning tool. If you believe you have a reason to create a trust, call your estate planning attorney.
Will and Last Testament – This is the most common estate planning document. It can accomplish many things, but most commonly it is the document used to name a personal representative who will assemble your assets, pay your creditors, and distribute your assets according to your stated wishes. You can also nominate guardians and conservators or custodians for your minor or disabled children. While you do not need an attorney to draft a valid will in MN, if you want to make sure that the document will accomplish its purposes, the guidance of an experienced estate planning attorney is highly recommended.
Power of Attorney – This is a very powerful and useful document that gives authority to a person that you name as your “attorney-in-fact” to assist you in times when you require help asserting your financial and/or economic rights when you are unable to do so yourself. Because of its potential broad financial power, it is very important that you consult an attorney for assistance in creating a Power of Attorney.
Healthcare Directive – A Healthcare Directive appoints an agent who can talk to doctors and make medical decisions for you at a time when you are unable to make such decisions for yourself. It also provides statements called directives, or wishes, that spell out how you’d like to be treated, cared for during your life, and how your remains should be handled after your death.
Transfer on Death Deed – A Transfer on Death Deed is a very specific conveyance document that operates much like a beneficiary designation for real property. As you may already know, many forms of assets (financial accounts, retirement accounts, life insurance, etc.) use beneficiary designations to determine who will receive the benefits of those accounts after the account owner’s death. If you would like to learn more about why and how you can use a Transfer on Death Deed to accomplish your estate planning goals, contact your estate planning attorney.
According to the MN Attorney General’s website, “Probate is the legal process of settling your estate in court after you die. Your property is gathered and inventoried, your debts are paid, and everything left over is divided among your heirs. Your personal representative is responsible for ‘probating’ your will. If you have no will or did not name a personal representative, the court will appoint one for you. If there is disagreement over your will, a probate judge will resolve the differences. Probating a will begins by filing an application with the probate court. Probate ends when all debts and taxes are paid and all assets are distributed. If there is disagreement over your will, a probate judge will resolve the differences.”
Probate does not always include distributions of real estate. Here is what the Attorney General’s website has this to say about Real Estate and Probate: “Unless real estate is owned in joint tenancy with right of survivorship or placed into a trust, it must be probated. Joint tenancy means that the property is owned by two or more people who have an undivided interest in the property and that interest continues in the survivor after other owners die. If you are a resident of Minnesota and own real estate in another state at the time of your death, the probate laws of that state will apply to that real estate. In other words, real estate is probated in the state where it is located.” Here is a link to the MN Attorney General’s website if you’d like to learn more about the probate process click here.
If your goal is to avoid the house going into probate, there are several ways to accomplish that through basic estate planning. However, each method may have undesirable consequences that an attorney can help you understand and evaluate before choosing your ultimate strategy. Again, we are happy to provide a recommendation to an excellent estate planning/real estate/probate attorney to assist you with your needs.
Part 2: Tax Stuff.
There are a lot of factors to be considered from an income tax standpoint when serving aging Americans in selling their home. Attorneys and Accountants typically collaborate at this point to make sure there are Wills in place, possibly even a Trust. Please keep in mind, this is a very general overview of this topic and we are only discussing selling of a home. There is quite a bit more that should be considered with aging Americans, sheltering tax and preparing for the future.
As an accountant, we are looking for some of these when it comes to a home sale:
- Is there a mortgage still on the home (1098 being received at year end each year)?
- Is there a reverse mortgage on the home?
- Is there or was there joint ownership in the property? Are both spouses still alive?
- Is there a Will in place on what will be done with the home proceeds?
- Is there a Trust in place? Is the home part of this Trust?
- Has there been Estate Planning done? Who is the designated Beneficiary on the Account that we can work with?
- Are you prepared for the possibility of an Estate Tax Return?
- What are the parents Gross Income?
- Residency Test.
Residency Test of Capital Gains – The Internal Revenue Service looks to the residency test when a home residence is sold to determine if there will be Gains on the sale that will need to be calculated and paid at income tax time. If you parents have lived in their home as their primary residence for 2 of 5 years, owned their home for 2 of 5 years and not excluded another gain from the sale of another home during the 2 year ending on the date of sale, they can sell their home and have a gain (they can sell it for more than they purchased it for) up to $500,000 without having to claim that as income on their income tax return that year. If you have a single parent, they can exclude up to $250,000 gain on sale if they meet the same conditions as a married couple.
*the required two years of ownership and use during the 5-year period prior to the sale do not have to be continuous. The ownership and use test can be met at different times during the 5-year period.
Estate Tax Return – referencing back to the information the Attorney included regarding Estates and Trusts, it may be possible that your parents have to file an Estate Tax Return, or you have to file one on their behalf.
If your parents have an Estate and they have more than $600 of Gross Income, they would be required to file an Estate Tax Return. If they had a Trust, any taxable income and/or Gross Income of $600 or more would require an Estate Tax Return to be filed.
Gross Income Definition – Gross Income is a taxpayer’s gross pay before any taxes or other deductions are withheld. Examples include: Wages, Dividends, Interest, Capital Gains and Rental Income. If you believe you may be in a position to have one filed, please seek out the advice of an Accounting professional to go through some questions and help you with this area.
Part Three: Who Handles What?
The biggest thing we see with older people and older homes is that the houses have gone into disrepair. We also see older wallpaper, and lovely hardwood floors under some really awful carpet.
The good news is, you don’t have to fix everything and redo the home from top to bottom. In fact, we don’t want you to remodel! Our agents are skilled in helping you determine which projects to tackle and what to leave alone, so if you’re in doubt, have us out to take a look. In general, don’t worry too much about dated wallpaper, worry more about a clean and empty house with functioning appliances and mechanicals.”
In fact, it’s often better not to invest in cosmetic changes. You may think a nice peach paint looks great in the bathroom, while the buyer hates pastels and is going to paint everything grey. So focus on deferred maintenance.
Check the Major Mechanicals. Arrange for CenterPoint Energy’s Home Service Plus, where they’ll do a tune-up of your major appliances such as furnace, air conditioning, gas fireplace, clothes dryer, dishwasher, range, refrigerator, freezer, and more.
It’s so much easier to spend a couple hundred dollars to have them come and look at everything, rather than having the furnace go out a week before closing and having to put in a brand-new $4000 furnace! A little preventive service can go a long way.
Pay Attention to Basic Home Care.
- Get someone to mow the lawn or shovel the walk or rake the leaves, depending on the season. Take the trash out.
- Clean out the refrigerator and freezer.
- Repair anything that is actually broken.
- Clean everything! (toilet seats down please! ;))
- Patch any holes and touch up paint.
- Make sure every fixture has light bulbs (and that the lightbulbs are all the same color).
- Make sure you’ve got smoke/carbon monoxide detectors. (1 carbon and 1 smoke on each level plus 1 smoke in each bedroom.)
- Consider replacing that one mismatched appliance that you’ve been waiting to die.
- Round up a recent utility bill for gas/electric/water. (This is sort of personal but at least having the $ amounts readily available will be helpful, many buyers ask for it.)
- Make sure you have a key for the front door. (Again, you’d be amazed at how many people do not have a key for their own house.)
Clear Out the Junk.
If your parents are still alive, now is the time to start sorting through their possessions. Help them decide what to keep, what to toss, and what to give away. If there are items they want to give to specific people, why not start now?
You may want to have an estate sale. There are services that will price items and host the sale, taking a percentage of the proceeds as their fee. Then you can arrange for a hauling company to remove the rest.
Click here for a list of junk removal services in Minneapolis.
Part Four: Emotional Elements
Up until this section, we’ve been dealing with the facts and tasks and realities of the business side of selling your parents’ home. But the truth of the matter is, this is an emotional process.
Whether your parents have died or are still alive, no one likes facing their own mortality, or the death of someone close to them. And with numerous personalities among siblings and other relatives, things can get tense fast.
This is not going to be the funnest thing you’ve ever done in your life. There are times when you’ll be overwhelmed, frustrated, tired, and even angry. That’s natural, so give yourself a break.
Disagreements are going to happen because everyone has different opinions and different wants and needs. But the more your parents can put in writing before they pass away, the fewer arguments there will be over “Mom told me XYZ” and “he said blah blah blah.”
Even though there will be conflicts in this process, you can limit the emotional impact and the severity by clarifying things as much as possible beforehand.
No one knows when they are going to pass away, and there’s never a good time to have someone die. While we can’t plan for WHEN it will happen, we can plan for a peaceful transition in the future by getting our plans together beforehand — and helping our parents to do the same.
Be straightforward and direct. No one wants to talk about this. No one wants to face the end of their life. But it’s an inescapable reality. The only choice is how much of a mess we’ll leave for our loved ones to deal with after we’re gone. The goal is that when the inevitable does happen, survivors can focus on supporting family and loved ones instead of making big, complex decisions.
And if your parents constantly avoid any discussion of what’s going to happen after they die, remind them that talking about it now will eliminate conflicts between their kids later. No parent wants their kids to fight. Remind them that you’re bringing up the topic not to make them uncomfortable, but to avoid problems later.
If you have questions about the process, we’d be glad to chat with you. We’ve also included a list of helpful resources as you go through this process.