What to Do When You Inherit Property in Texas

Inheriting a house in Texas is a good thing at first for about a week, then the first property tax notice shows up along with the utility bills. Then suddenly a long-lost cousin shows up with ideas on how to sell the house or manage the property. It is a very problematic situation that can cause a lot of expensive mistakes in the first few months. It is very common that people make very expensive mistakes while they are still trying to figure out what they even own.

Understanding the Legal Process

Ownership of a home passes at death of the owner. But the title does not automatically transfer to the heir or heirs. The title must be transferred in the legal process through the court system or by using alternative methods to go around the court system. Assuming there is a valid will, it will likely need to go through probate.

In Texas, there is a four-year statute of limitations for the probating of a decedent’s will. One would anticipate that most people would complete the probating of an estate within a year of the decedent’s passing.

Don’t mistakenly look for a transfer on death deed in the county records. While Texas does allow the use of a transfer on death deed, the fact that your relative used such a deed to pass the property to another means that the property will pass to that person with no probate. Thus, no application for probate would be filed.

A few other paths to know about:

A muniment of title is a method to have a will probated by a court as proof of the testator’s ownership of property at the time of death without going through a full administration of the estate.

Such a method is appropriate in many cases, including those in which the testator’s estate consists only of real property having secured debt (e.g. mortgages) and in which there are no unsecured debts (e.g. credit cards, medical bills) other than those already secured by real property.

In the absence of a will, the Texas intestate laws will dictate who are the heirs of the deceased and a judge will be required to issue a decree of distribution to said heirs.

Some families try to go around the probate process by signing an affidavit of heirship. Affidavits of heirship are usually cheap and facilitates processing of transfer of real property. However, they can cause serious problems and even cause a sale to stall because of title inspection by a buyer’s attorney. Many title companies will not insure a conveyance of property that was transferred by an affidavit of heirship.

Assessing the Condition and Value of the Property

You want to establish the value of the real estate as of the date of death to prepare a proper Federal and State tax return. This can be very difficult to establish years later.

One big thing to note is that empty houses in Texas decay very quickly. A leaky roof, a broken air conditioning unit in the heat of summer and even break-ins are a serious problem and need to be addressed right away. Also check with your insurance company regarding the status of your vacant home as some policies do not provide coverage within 30 to 60 days of a home becoming vacant. This is often discovered after a claim has occurred. Wait a few months before deciding whether to fix up the house or to throw out most of the deceased relative’s property.

Families can quickly fall into an argument over the products of a recently deceased relative when they are distributed among multiple heirs. If several people inherit the house, they can fight over who gets to keep many of the deceased relative’s household items.

Co-ownership of real property can present its own unique set of problems among family members left as heirs of a deceased relative. In Texas, any one of the co-owners may request that the property be sold through a court-supervised partition. From a pure dollar-and-cents perspective, a forced sale is rarely in anyone’s best interest, and thus a written agreement amongst heirs regarding use and ultimate disposition of the property is advisable. The cost to put such an agreement in place is far less than the cost to conduct a partition.

Are There Outstanding Debts and Costs?

Because the inherited home is paid for with the mortgage of the deceased relative, one would expect that all payments must immediately cease. Although there is no requirement for immediate full payment by lenders of the deceased, the loan does not cease to exist while others sort through the home of the deceased relative.

Reverse mortgage loans become immediately due and payable at the time of death of the borrower. After that time, heirs have a short period of time to either pay off the loan or sell the property. In the case of a reverse mortgage, however, such loans typically become due and payable upon the borrower’s death. Such a loan must be repaid by the estate within months, not years.

Texas homesteads are protected from most unsecured creditors like credit card debt and even medical bills. The mortgage, property taxes and any home equity loans are another story entirely. You are not responsible for paying off your relative’s credit card debt even though you inherited their home. That debt will have to be paid by another family member or settled with the creditor through separate negotiations.

Many costs associated with a home continue to exist after a person passes away until the home is sold, including:

• Property taxes and homeowner’s insurance
• Utilities, even for a house nobody lives in
• HOA dues, lawn care, and repairs
• Court and attorney fees for the probate itself
  
  

Tax Implications

If you are amazed by how well the state of Texas treats inheritors, be sure to remember that Texas has no inheritance tax and no estate tax. Yes, the federal government only will collect on estates in excess of $15 million per decedent in 2026 (so far). But that is far above the typical single-family home in Texas.

However, there is another tax issue with inherited property – capital gains tax. Inheritance has some benefits when it comes to calculating capital gains. You get to use the date-of-death value of the property as the new cost basis for the property.

Suppose your parents bought a house for $90,000 and it was worth $240,000 when they died. If you sell for $250,000, you’re taxed on a $10,000 gain, not $160,000.

Property Taxes

The taxes on homesteads are frozen at the amount on the date that the owner dies. In El Paso, this means that you will have to contact the Central Appraisal District (CAD) to get the amount of homestead exemption that your deceased relative received. Once you decide to move into the house, you can apply for your own homestead exemption. If you decide to rent the house out, then your rental income will be subject to tax, and you will need to complete a number of forms to report that income. You should consult a Certified Public Accountant (CPA) before leasing out the house of a deceased relative.

Don’t Let Unforeseen Complications Ruin Your Inheritance – Talk to an El Paso Probate Attorney First

Each estate has unique situations whether it be a missing deed, an unwilling relative, or an unknown lien. These items can cost lots of money to fix after a sale has been scheduled for the property. Winton Law El Paso represents people who have inherited property in El Paso or elsewhere in El Paso County. Please call, text or send an email to discuss your specific situation in detail and to get answers to all your questions prior to taking action.