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Imagine getting a note like this:
“My mom died in August. My brother and I inherited her house, but we both live out of state. Mom’s house has been empty since she died. Her homeowners insurance is still on autopay. We figure we’ll sell in the spring. We’re covered until then, right?”
Let’s call her Janet, 61. Her question is one a lot of heirs face, and the answer may be no.
I’ve been a CPA since 1981, and I was the executor of my parents’ estate. When a parent dies, the house is often the biggest thing left, and in my view an empty house is the easiest one to lose money on.
Here’s why. The National Association of Insurance Commissioners warned in 2010: “Some insurers may not pay claims if a home is vacant for 60 days or more.” (1)
The NAIC also noted that homeowners policies generally include exclusions for neglect or abandonment when a home is left vacant for a set number of consecutive days. (1)
Then there’s winter. Water expands as it freezes, which puts “tremendous pressure” on pipes, according to the American Red Cross. (2)
And when Janet sells, the tax bill will generally depend on what the house was worth the day her mom died. (3)
Here are five things I’d tell Janet to do now.
1. Call Mom’s insurer this week
Don’t assume the autopay means the coverage is still good. Call the company, tell them the owner died, and tell them the house is empty.
The NAIC’s advice to people leaving a home unoccupied is short: Talk to your agent or company first, and “be honest about your situation.” (1)
Some policies may automatically shift to a different amount of coverage, such as liability only, after a home has been unoccupied a set number of days. (1)
Ask what the policy covers now, how long it lasts, and whose name needs to be on it.
If the company won’t keep covering an empty house, or you need a new policy in the estate’s or heirs’ names, compare quotes before you settle. Insurify lets you compare home insurance quotes from multiple insurers in one place. Tell each one the house is unoccupied.
Compare home insurance quotes.
2. Keep the heat on
In an empty house, there’s nobody there to notice a burst pipe.
The Red Cross says that if you’ll be away during cold weather, leave the heat on, “set to a temperature no lower than 55° F.” (2)
It also says to close the inside valves that feed outdoor hose faucets, then open the outside faucets so the water drains. (2) Have someone check the house regularly, too, and write down the dates.
3. Keep paying the bills, and keep receipts
Property taxes, utilities and insurance don’t stop because the owner died. If they go unpaid, the problems pile up fast.
Pay them from the estate’s account if there is one. Keep every receipt. If one sibling is fronting the money, put the agreement in writing so nobody fights about it at closing.
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4. Pin down what the house was worth
Here’s the good news. The tax basis of inherited property is generally its fair market value on the date of the owner’s death. (3)
So if Mom paid $90,000 decades ago and the house was worth $300,000 when she died, Janet and her brother start at $300,000, not $90,000. Sell for about that, and there’s little or no taxable gain.
But the IRS says the gross proceeds from selling inherited property are generally included in gross income when figuring whether you need to file, so expect to report the sale. (3)
Get an appraisal as of the date of death now, while it’s easy, so you can prove the number later.
Inheriting an estate is also a good time to look at your own finances.
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5. Decide: sell, rent or keep
Waiting until spring to sell is a reasonable plan. Just make it a plan, not a default.
As a former landlord, I’ll tell you: Renting out a house from another state is a job. If you’re thinking about doing that, price out a property manager and repairs before you decide.
If you’re going to sell, set a date. Every month the house sits empty is another month of taxes, utilities and insurance.
Bottom line
Janet’s instinct to slow down after her mom’s death is healthy. Grief doesn’t run on a schedule.
But the house can’t wait. One phone call to the insurer and a thermostat set no lower than 55 degrees go a long way.
Make the call this week. Then take your time with the rest.
Sources: 1. Insurance Journal (National Association of Insurance Commissioners, 2010); 2. American Red Cross; 3. IRS
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