If you lost a parent, one of the main questions you will be asking is how to divide inherited property between siblings. The answer to this question will depend on whether your parent died with or without a will.
Parent dying without a will
If your parent died without a will, inherited property will be divided among siblings using your state’s intestate laws. Generally, in most states, the surviving spouse and children have priority in inheriting from a deceased parent who dies without a will. In some states, only the surviving spouse inherits, if the only children of the deceased parent is that with the surviving spouse’s and there are no other children from other relationships. Consult your state intestacy laws to know how property will be divided among heirs when a deceased parent dies.
When your parent dies without a will and the value of the estate is not small, you need to file a petition for letters of administration for the appointment of an administrator. This administrator will have the power to distribute your deceased parent’s assets between the siblings.
When your parent dies with a will and the estate value is not small, the nominated executor in the will has to file a petition for letters testamentary. The nominated executor may be any person and is not limited to the surviving spouse or children. Once the executor is appointed by the court, the executor can distribute the inherited property between the siblings after payment of the estate’s debts and expenses.
The executor or administrator has to file an inventory of the property within a reasonable time, usually 90 days, from the deceased parent’s death. If there is real property in the inventory, the real property has to be appraised. The appraised value will be the stepped up basis of the heirs and will be the basis in case the heirs decide to sell the property. If you need assistance in the filing this petition, you can call us at 718-509-9774 or send us an email at firstname.lastname@example.org.
When the assets are insufficient to pay the debts
The executor or administrator has to pay first the estate’s debts and expenses before distributing the inherited property to you. If your parent’s assets are insufficient to pay the debts and expenses, the executor or administrator has no choice but to sell your parent’s property. If there is money left after the payment of the estate’s debts and expenses, the remaining proceeds will be distributed between the siblings.
When the inherited property has a mortgage
When the inherited property still has a mortgage, you and your siblings are faced with a decision: (1) you can pool your funds to pay off the mortgage; (2) you can sell the property to pay off the mortgage and divide the remaining proceeds between the siblings; or (3) buy out your siblings’ shares.
Selling property to pay off mortgage
The usual option of siblings when they inherit property with a mortgage is to just sell the property, pay the mortgage debt and other expenses, and divide the remaining proceeds. It is the easiest way to deal with inherited real property.
Pooling funds to pay off mortgage
Another option for siblings is to pool their funds to pay off the mortgage. Under this option, however, there are several considerations: (a) what if the siblings all have different contributions in paying off the mortgage; (b) how are the siblings going to divide the maintenance costs of the inherited property; and (c) what are you going to do with the inherited property?
Because the answers to these questions can all be different depending on the circumstances of the siblings, choosing this option of pooling funds to pay the mortgage and to co-own property will require the assistance of a lawyer who can draft an agreement among the siblings. This agreement, signed by all the siblings, will govern the relationship of the siblings with respect to co-owning the property (i.e., contribution of expenses, distribution of net income, use of co-owners of the property, etc.).
Buying out your siblings’ shares
There is also another option of buying out your siblings’ shares. Under this option, you not only have to pay off the mortgage, if there is any, but you also have to buy your siblings’ shares.
You can pay off the mortgage and your siblings in cash if you have a lot of money in the bank. If your cash is not enough, you can get a probate or trust loan, a short-term high-interest loan which allows you to purchase the property quickly. After consolidating the property in your name, you can have the property refinanced with a traditional lender for a long-term low-interest loan.
When the inherited property has no mortgage and assets are sufficient for estate debts
When you and your siblings inherit property without any mortgage and the deceased has enough assets to pay off the debts and expenses, the executor or administrator will most likely just deed to you and your siblings the property. In this case, you will co-own the property with the other heirs under tenancy-in-common. Jointly held property under tenancy is common is governed by state laws. Most states give each co-owner the right to live in the property, which can result to disagreements when other co-owners want to sell or rent out the inherited property.
When you and your siblings cannot agree on how to divide inherited property
If, despite your options above, you and your siblings still cannot agree on how to divide inherited property, the unhappy sibling has to file an action for partition. A partition lawsuit forces the co-owners to come before the court and agree on what to do with the property. Unless the property can be physically divided, the court will usually just sell the property, subtract the costs and expenses, and divide the net proceeds among the heirs. An action for partition, however, can decrease your equity in the property because attorney fees will also be subtracted from the sales proceeds before distributing the net proceeds to the heirs.
In New York, under the Uniform Partition of Heirs Property Act, heirs are required to negotiate in good faith to reach a mutually agreeable solution. The court can dismiss the action for partition if it is shown that one of the parties does not negotiate in good faith.
To summarize, when property is still estate property, such property can only be distributed among the heirs after payment of the estate’s debts and expenses.
If the property is subject to a mortgage, the executor or administrator usually sells the property and divides the proceeds among the heirs, unless the heirs decide to pay off the mortgage themselves or assume the mortgage payment.
When heirs decide to keep property together, an agreement should be prepared that will govern the relationship of the heirs as co-owners. This agreement will govern contribution of expenses, collection of rental income, and distribution of net proceeds, to name a few.
When the property is not subject to a mortgage and assets are sufficient to pay off debts, the executor or administrator usually deeds the property to the siblings as tenants-in-common.
When the siblings do no agree on how to manage the property as tenants-in-common, an action for partition may be inevitable to force the division of such property.
Should you need assistance in the evaluation of your case in dividing inherited property among siblings, we at the law offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at email@example.com