Inheriting your family’s home is not always a good thing

Inheriting the family home could either boost your wealth or cause financial stress. Picure: Cottonbro Studio/Pexels

The family home often offers a strong emotional connection to one’s past and can evoke a number of sentimentalities when it comes to selling or inheriting this piece of personal history.

Property owners selling their much-loved homes often struggle to separate emotion from the transaction but when one has been bequeathed the home of a deceased parent or family member the feelings can be more powerful.

Add to this the financial implications and beneficiaries could find themselves unsure what to do.

The passing of a loved one is difficult and dealing with the intricacies of inheritance while grieving is not always easy, says Bill Rawson, chairman of the Rawson Property group. However, understanding your options and obligations can make the process much simpler for everyone involved.

Jawitz Properties’ Mariette Breytenbach agrees and says being the beneficiary of fixed property brings with it several pros and cons to consider.

Financial implications of inheriting a home

When inheriting a property there are financial considerations to take into account. There might be outstanding debts on the property and beneficiaries need to consider the estate taxes and other financial implications associated with the inheritance, she says.

“Once the property is officially transferred to the beneficiary, other expenses related to maintenance, possible renovations, and monthly rates and taxes need to be taken into account.”

You also need to understand that you may not be the only person with a claim to the asset, Rawson says.

“There may be outstanding bond payments, unpaid rates or utilities, or even a loan secured using the property as collateral, and those debts will need to be settled, either by the estate or by the beneficiary, before transfer takes place.”

The party responsible for settling any property-related debts may depend on the specifics detailed in the will, but he recommends asking for all the relevant financials from the estate’s executor, regardless.

“It’s also important to check that the details on the title deed are correct as errors here can lead to delays and complications with the transfer.”

You need a professional valuation of your inherited home

Once you are aware of any liabilities relating to the property and have confirmed that the title deed is in order, Rawson says your next step should be to book a professional property valuation and comparative market analysis.

“This is important for a few reasons. The most obvious is in the event that you decide to sell and need to know where to position the property on the market. The value of inherited property on the day the title passes to the beneficiary also serves as its base cost for Capital Gains Tax purposes, so it’s vital that a figure is officially recorded.”

For beneficiaries who want to keep their inherited property, a valuation is also important as a way to ensure adequate home insurance and to assess potential rental returns.

Have a professional home inspection

In addition to a valuation, he strongly recommends beneficiaries have a home inspection performed, as serious maintenance issues may affect the viability of both keeping and selling an inherited home.

“A lot of older family homes require a fair amount of repair or renovation to bring them up to modern standards, which can be more of a financial burden than beneficiaries are willing to bear.”

Consider the impact on your family’s wealth

Breytenbach says being bequeathed a property is a “huge boost” to an individual or family’s private wealth. In terms of wealth creation, it is an opportunity to establish a financial future that has long-term benefits and offers a degree of security and financial protection.

“Property in South Africa has a long history of appreciating in value, so keeping the asset for the medium to long term will act as a wealth creator. In addition, renting out the inherited house or apartment will provide more passive income and the increase in the value of the property adds monetary value to grow the owner’s asset portfolio.”

She says additional tax deductions can also be applied if the property is used for the generation of income.

Carefully consider and weigh up your options after inheriting a home

Once all the necessary steps have been taken to evaluate the financial implications of owning the property, Rawson says beneficiaries need to decide whether to move in, sell it, or find tenants.

“If you’re in any doubt, sit down with your estate agent and have an honest conversation about what you hope to get from the property. Sometimes, sentimental value is more important than profit. Other times, a clean break is just easier from an emotional and financial point of view.”

Understand the costs of keeping an inherited home

Conveyancing fees and transfer duties are typically paid by the estate, not the beneficiary so the only real cost – other than settling debt and doing maintenance and improvements – is if Capital Gains Tax applies, Rawson says.

Luckily, under South African tax law, CGT only applies when the property is sold by the beneficiary, and is calculated based on the difference between the property’s present-day value and its value on the day it was inherited.

Find out beforehand if you will inherit a family home

The intricacies of bequeathing or inheriting fixed property are complicated and there are many factors to take into account. Breytenbach therefore suggests that property owners discuss the matter of bequeathing a property with the potential beneficiary prior to them finding out about it at the will reading. This will allow them the time to carefully consider the various expenses and legalities.

“Nonetheless, inheriting a legacy property is an opportunity for wealth creation and a way in which to solidify wealth across generations, whilst retaining and celebrating history, culture and family ties.”

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