Keep or Sell an Inherited House?

What Inheriting a California House Actually Means

Title passes in one of four common ways, and each decides who can sell and when.

• Probate. The court supervises the estate, whether there is a will or not.
• A revocable living trust. The successor trustee acts under the trust document.
• A transfer on death deed. Under Probate Code section 5652, the deed transfers the owner's interest at death to the named beneficiary, who may disclaim it; if there is more than one beneficiary, they generally take as tenants in common in equal shares, and the property passes subject to recorded liens, leases and similar limits.
• Joint tenancy. The surviving joint owner takes the decedent's share by survivorship.

Authority to sell comes from the will, the trust document or the court's letters, never from the family's agreement. Under Probate Code section 8400, a person has no power to administer an estate until appointed personal representative and issued letters, though a named executor may first pay funeral expenses and take necessary measures to maintain and preserve the estate.

A few roles recur. An executor is the person a will names to administer the estate. An administrator is the person the court appoints when no executor serves, such as when there is no will. Personal representative covers both. A successor trustee takes over a trust after the original trustee. An heir inherits by law; a beneficiary is named in a will, trust or transfer on death deed.

Basis is the starting figure for measuring taxable gain. Under 26 U.S.C. § 1014(a), an heir's basis is generally the fair market value at the date of death, or the value on an alternate valuation date if the estate elects one, not what the decedent paid. Under 26 U.S.C. § 1014(b)(6), a surviving spouse's half of community property is treated as passing from the decedent if at least half the community interest was includible in the gross estate. A CPA, an enrolled agent or a tax attorney reviews basis questions.

Carrying costs are what the house costs to hold: property taxes, insurance, utilities, maintenance and any mortgage or lien payments.

Keeping the House: What It Involves

Property tax is the first number that changes when a family keeps the house. For transfers on or after February 16, 2021, Rev. & Tax. Code section 63.2 lets a parent-child transfer of the parent's principal residence escape reassessment, wholly or partly, if a claim is filed and the home becomes the child's principal residence within one year. The full conditions are in the property tax section below. If no heir moves in, the exclusion does not apply and the assessor sets a new taxable value.

A mortgage does not by itself force a payoff. Under 12 U.S.C. § 1701j-3(d), for a loan on residential real property with fewer than five dwelling units, a lender may not enforce a due-on-sale clause upon a transfer to a relative resulting from the borrower's death, among other listed transfers. The loan servicer explains its own process for an heir who takes over the payments.

Carrying costs run whether the heir moves in, rents the house or leaves it empty. When several heirs inherit together, every co-owner shares in decisions about use, costs and any later sale. A disagreement among them is a separate legal matter handled by an attorney who litigates partition cases.

Renting is the middle path. Rent can offset carrying costs, but it brings landlord duties under California law and changes the property's tax character, and the State Board of Equalization's Proposition 19 page says a rental home would not qualify for the parent-child exclusion. A CPA and a real estate attorney review that choice.

Selling the House: What It Involves

Basis is why many families look at a sale soon after a death. Because basis is generally the date-of-death value, as described above, a sale at or near that value may produce little taxable gain. The longer the house is held, the more any rise in value above that figure may become taxable gain when it sells. A CPA or tax attorney works through the actual numbers.

There are three ways to sell, each with its own tradeoffs:

• A listing with a licensed agent. It brings open-market exposure and the price competition that comes with it, along with a commission, preparation and showings, and often a buyer whose loan must close.
• A sale by the owner without an agent. No listing commission is paid, but the seller handles pricing, marketing and negotiation, and the same disclosure duties apply.
• A direct sale to a buyer who pays cash and takes the house in its present condition. A direct offer is often lower than what the open market might bring, because that buyer carries the repairs, the risk and the cost of reselling; the seller receives less preparation, fewer showings and no wait on a buyer's lender. A family can get an offer on an inherited property from Silver Lining Inherited Property for a direct as-is sale, and asking carries no obligation to sell.

Comparing written offers and estimated net proceeds is how a family tells which method fits. Net proceeds are the price less commissions, repairs, carrying costs, loan payoffs and closing costs. The tradeoffs of a cash offer versus a listing and of an inherited house that needs repairs turn on that same arithmetic.

Disclosure duties depend on who sells and how. Under Civil Code section 1102.2, the disclosure article containing that section does not apply to sales a probate court orders, among other court-ordered sales, or to sales by a fiduciary administering a trust or a decedent's estate, unless the trustee is a natural person who is trustee of a revocable trust and a former owner of the property or an occupant within the preceding year. The estate's or trust's attorney identifies which disclosures still apply.

In probate, whether a sale needs a court's confirmation depends on the authority the court granted and on whether anyone objects to a notice of proposed action. Otherwise, under Probate Code section 10308, a sale of estate real property generally must be reported to and confirmed by the court before title passes. Under Probate Code section 10503, the court-confirmation requirements, such as published notice of sale, court approval of agents' and brokers' commissions, sale at not less than 90 percent of appraised value and the court's examination of the sale, do not apply to a sale made with independent administration authority. The steps of selling during probate are the same whoever the buyer is.

California also requires withholding on some sales by sellers who are not California residents. The Franchise Tax Board publishes the current rules and figures.

Property Taxes and Proposition 19: The Reassessment Question

Rev. & Tax. Code section 63.2 governs parent-child and grandparent-grandchild transfers on or after February 16, 2021. The State Board of Equalization's Proposition 19 page says the date of death is the date of change in ownership, so the date of death decides which rules apply.

The exclusion covers a family home or a family farm. For a home, the conditions are that the house was the parent's principal residence, that it becomes the child's principal residence within one year of the transfer, and that the child files for the homeowners' or disabled veterans' exemption within a year. A grandchild qualifies only if all of the grandchild's parents who are children of the grandparents, other than stepparents, are deceased as of the transfer.

The exclusion is partial above a limit. If the market value is at or above the prior taxable value plus $1,000,000, the excess is added. The State Board of Equalization's Proposition 19 Fact Sheet gives the adjusted amount as $1,044,586 for transfers from February 16, 2025, through February 15, 2027. The Board and the county assessor publish later figures.

The claim is filed with the county assessor. It is due within three years after the transfer, or before a transfer to a third party, or before the heir stops living there, whichever is earlier. It is also timely within six months after the assessor mails a supplemental or escape assessment notice. A late claim on a house not yet sold to a third party is considered, but the exclusion applies only from the lien date of the year it is filed. The assessor's office has the current form.

A sale ends the exclusion question, because no heir keeps the home, and the buyer's purchase is reassessed. For the seller, what matters is the time between the death and the close of escrow, when property taxes at the new taxable value are part of carrying costs if no exclusion applies.

When Keeping Usually Fits — and When Selling Usually Fits

Keeping tends to fit when an heir means to live in the house and qualifies for the exclusion, when any mortgage is affordable, when all co-heirs agree on use and cost-sharing, and when the heir can carry the property.

Selling tends to fit when no heir will live there, when carrying costs exceed what the estate or heirs can sustain, when co-heirs disagree about use, when the heirs live far away, or when the estate needs cash for debts, taxes or distributions.

Neither list is the answer. The heir's finances, the house's condition, the number of co-heirs, the estate's debts and the tax results all weigh in. Where heirs are in open conflict over keeping or selling, the matter is contested and goes to an attorney who litigates trust and probate cases.

A hypothetical shows why the facts drive the answer. One heir inherits a paid-off home from a parent, moves in within the year and files a timely Proposition 19 claim. That heir's carrying costs may stay close to the parent's. Three siblings inherit a mortgaged home from a parent, and none plans to live there. Their house will be reassessed and their loan payments continue. With every month of holding, any rise in value above date-of-death value becomes part of a future taxable gain.

Multiple Heirs: When Co-Owners Must Decide Together

During administration, the personal representative or successor trustee holds authority to sell. Co-heirs who are not that fiduciary cannot sell the house on their own in that period.

Once the house is distributed to several heirs, each holds an undivided share of the whole. Selling, refinancing or a major change then needs every co-owner's signature. If co-owners cannot agree, California law lets any co-owner ask a court for partition, which can lead to a sale with the proceeds divided or, in some cases, a physical division.

Co-heirs often take a few steps while they decide:

• Put cost-sharing in writing. That means who pays the taxes, insurance, utilities and upkeep in the meantime.
• Work from one value estimate. A professional appraisal or a broker's price opinion gives everyone the same number.
• Compare offers on paper. Written offers and estimated net proceeds show what each share would actually be.

A dispute over whether to sell, a claim of mismanagement or a challenge to the fiduciary's authority is a contested matter handled by an attorney who litigates trust and probate cases.