What to Do – and Not Do – with Real Estate After Someone Dies

What happens to real estate when someone dies? Does the deed and title to the property matter for inheritance? Do you need probate for a California property, and how much can it cost? Should I keep or sell an inherited property? How can a living trust simplify real estate inheritance? What are the legal deadlines when a property owner dies? What happens to inherited properties with multiple owners?

By James L. Cunningham Jr., Esq.

When someone dies owning real estate, and you are an executor, trustee, or heir, you may quickly realize you’ve stepped into a confusing maze of possibilities. It’s often a maze with high walls, hidden pitfalls, and no map. What should happen first? What needs to happen before you can legally control the property? Who is responsible for taking these actions? Should you keep the property, sell it, or rent it out? What are the tax implications of that decision?

In this article, I’ll outline the most critical steps and considerations. You may also want to watch the webinar on this page for more detail. You will also find many additional webinars and blogs on our website to help trustees, heirs, and executors of estates. If you believe you need legal guidance in California, I invite you to schedule a call with CunninghamLegal as soon as possible.

What Should You Do With Real Estate After A Death In California?

There are a few initial legal steps you should likely take right after someone passes away, so let’s cover those right off the bat:

1. Decide what professional advice you need, and consider assembling an A-Team of advisors, including an Estate Lawyer, CPA, and investment advisor.
2. Determine the ownership on the official title documents and who has the power to sell them.
3. Notify the county assessor. Death is considered a “change in ownership” for tax purposes. You must notify the local assessor within 150 days to avoid penalties. Failing to report can result in significant back taxes and fines.
4. Decide if the property needs to go through probate. If a Living Trust or Joint Tenancy does not hold the title, I strongly suggest you immediately contact a qualified Probate Lawyer about the next steps. You can contact CunninghamLegal here.
5. Educate yourself on Prop 13 and Prop 19 in California. Property Taxes matter a lot, and the issues are complex. Property taxes often go up as of the date of death. Discuss with your Estate Lawyer and CPA.
6. Record an affidavit of change of trustee or ownership. If the property is in a trust, the successor trustee should record an affidavit to formally transfer management. Take this step even if you intend to sell the property.
7. Handle reassessment issues. Transfers between spouses and certain parent-to-child transfers may qualify for reassessment exclusions, but deadlines are strict. Missing them can cost tens of thousands in higher property taxes. Consult a qualified Estate Lawyer or CPA.
8. Address debts on the property. Understanding loan terms is critical. If there’s a mortgage, check for acceleration clauses. Some loans become due upon the borrower’s death, requiring immediate action.
9. File any required federal reports. If an LLC or other entity owns the property, you may need to update ownership information with FinCEN within 30 days.
10. Only now…decide if you will keep the property, rent it out, or sell it!

What Should You Not Do with Real Estate After a Death?

What you should certainly not do after someone dies is let a lot of time pass before taking positive actions. It is a common myth that heirs should “wait a year before doing anything.” That’s terrible advice. While taking some time before making big emotional decisions is wise, delaying action on legal, tax, and financial steps can lead to penalties, unnecessary costs, and missed opportunities.

In other words, don’t do nothing.

For example, failing to notify the county assessor in California within 150 days of a property owner’s death can result in significant penalties. Similarly, ignoring property loans with acceleration clauses could force a family into foreclosure.

Perhaps worse, doing nothing can create confusion among heirs, leading to disputes that tear families apart. One family I worked with waited years to handle their deceased mother’s property, only to discover a massive supplemental tax bill they couldn’t afford. The result? The property was sold under pressure, leaving everyone dissatisfied.

Do Not Sell or Distribute Assets, Including Property, Without Understanding the Tax Implications

Another common mistake is rushing to distribute or sell assets, including property, without understanding the tax implications. For example, selling a property before consulting an Estate Lawyer or CPA could mean missing out on significant tax benefits, such as the step-up in basis.

A “step-up” in basis (really, an “adjusted” cost basis) for real estate is a tax provision that, for the purposes of capital gains, sets the value of an inherited property at its fair market value at the time of the owner’s death. This adjustment can significantly reduce the capital gains tax owed by the beneficiary. You can accidentally miss out on a step-up by making the wrong moves. See my webinar on How to Avoid and Defer Capital Gains Tax.

I’ve seen families sell inherited homes quickly, only to realize later that they could have saved tens of thousands in taxes with proper advice. That’s especially true today when so many quick-sale, “as-is” buyers are out there, ready with tempting cash offers. You hear their radio commercials every day.

Consult experts to understand your legal requirements, tax implications, and all your options before engaging with any sale. Assemble an “A-Team” of a qualified Estate Lawyer (not just any lawyer), a CPA, and an investment advisor. You should also consult a realtor with expertise in your specific neighborhood.

What Happens to Real Estate When Someone Dies?

The first and most important factor to consider when determining how a property can be passed on and controlled by heirs is its existing legal title. The current title determines the process required to transfer or manage it.

If the legal title conflicts with the instructions in a will or trust, the title will prevail. Indeed, in California, people rightly say that “Title Controls” and “Title is King.”

Is the property titled in the name of an individual, jointly owned by a couple, a business like an LLC, or owned by a trust? If you are the spouse who jointly owned the property as a “joint tenant,” you will likely find it easy to maintain control of the property. However, you should consult a qualified Estate Planning Lawyer on properly retitling the property—as part of a review of your overall Estate Plan.

To find out how a property is titled, you can check the paperwork, but you should also consult the County Clerk or Registrar/Recorder Office in the County where the property is located. You can visit in person or have your lawyer check. For manufactured homes or mobile homes, you can start at the California Department of Housing & Community Development website. There are also a variety of private search portals on the web.

Here’s a breakdown of the common ways title is held in California:

1. Trusts: If real estate is titled in the name of a trust, often a “Living Trust,” the Successor Trustee controls it on behalf of the Beneficiaries after the owner’s death, avoiding probate. The type of trust and its terms are vital to understand. A Successor Trustee must follow the terms of the Trust in using or selling the property.
2. Sole Ownership: If only the deceased’s name is on the title, the property will almost certainly have to go through probate, a court process we discuss below. The court appoints a “personal representative” to manage the property, possibly the executor if there is a Will.
3. Joint Tenancy: At death, the surviving joint tenant(s) usually automatically inherit the property, bypassing probate.
4. Community Property: Spouses in California can hold property as community property, which means each spouse owns the whole property. Spouses are free to transfer their half of real property, which is community property, to whomever they want—but only that half. If one spouse dies, and both spouses are on the title as “Community Property,” their share may pass through a will or trust, but the situation can be complicated.
5. Community Property with Right of Survivorship: This passes the property directly to the surviving spouse, avoiding probate.
6. Tenancy in Common: Each owner’s share is distinct and can pass to their heirs but often requires probate.
7. Owned by a Business: The property may be fully or partly owned by an LLC, a partnership, or another business entity.

How do these possibilities play out? Very differently!

Imagine that Oscar owned a California property titled as a “Joint Tenancy” with his brother, Victor. When Oscar passes away, Victor automatically inherits the property without needing probate. If the property had been titled as “Tenants in Common,” a probate process of 16 months or more might need to be completed, in which the court would consider Oscar’s heirs. Even if Oscar had named Victor his only heir, the probate process would probably be necessary.

Fundamentally, there are three basic processes for the transfer or sale of property after a death:

1. Probate when there is no fully funded Living Trust, even if there is a Will. If there is no valid Will, the laws of intestate succession will apply.
2. Trust Administration if the property is properly titled within a trust.
3. A corporate sale if the property is owned by an LLC or other corporate entity such as a Partnership or Corporation.

Do I Have to Complete Probate on a Property I Inherit?

Probate is often the biggest hurdle for families, and proper Estate Planning by property owners before they pass away is generally the only way to avoid it. Usually, that means moving the title of a property into a Living Trust—a step that is taken by owners before they die.

Importantly, a Will is not enough to avoid probate in California. Think of a Will as little more than a letter written to a Probate judge which they will take into consideration during the process of making a finding in court that the Will is in fact the Last Will of a deceased person.

Consider this common scenario: Bob and Susan’s father passed away unexpectedly soon after their mother died. Even though their father wrote a Will, their home was titled solely in their father’s name and not included in a trust. Bob and Susan had no idea what probate was all about. Still, soon they learned they would need to hire a lawyer, navigate months of court proceedings (easily 16 to 24 months or more in California), and pay thousands in legal fees to legally inherit the family home—a necessary step before selling it, renting it, or transferring it. If their father had created a Living Trust and moved the title into that trust, the probate process would likely have been avoided entirely.

This situation is far too common, underscoring why good Estate Planning by property owners is crucial.

What complicates matters further is that probate laws and costs vary by state. California’s probate fees are among the highest in the country.

For families who own properties across state lines, ancillary probate may also be required, adding another layer of complexity. A property in Arizona, for example, would need to go through Arizona’s probate process even if the primary estate is settled in California. This can significantly delay the transfer of assets.

Do You Need to Go to Probate When You Inherit Real Estate?

If you believe a property will have to go through probate, I strongly advise contacting a qualified Estate Lawyer with a specialty in Probate right away. Yes, it’s possible to do it on your own, and we provide a detailed step-by-step guide to probate on this website, but you will likely save considerable time and money working with a professional.

In brief, Probate is a court-supervised process to ensure proper transfer of assets. It comes with significant downsides and pitfalls:

• Time: Probate in California can take 16-24 months or longer if complications arise.
• Cost: Fees often consume 4-8% of the gross (not net of debts) estate value, including both attorney and executor fees. We have a probate fee calculator on this website.
• Public exposure: Probate is a public process, meaning anyone can see the details of the estate.
• Creditor-focused: Probate’s primary function is to pay creditors, not to make life easy for heirs and beneficiaries.

Again, to avoid probate, ensure real estate is titled properly during the owner’s lifetime. A Living Trust is the gold standard in California. If the property is held in a trust, the successor trustee can manage it without court involvement.

It’s worth noting that some properties can qualify for simplified probate procedures if their value is below a certain threshold. For example, as of this writing, family homes of $750,000 or less and other properties valued under $184,500 may be eligible for a streamlined probate process, but this rarely applies in California, where real estate values are typically much higher.

Before you make crucial decisions or take the wrong steps, set up a consultation with CunninghamLegal today.

What Is Trust Administration?

If the property is titled in a Living Trust, it’s the job of the Successor Trustee to follow the dictates of the trust in distributing or selling the property on behalf of the Beneficiaries.

The process is called Trust Administration, and it follows the deaths of the Grantors (the original trust owners). Trust administration includes identification and taking control of trust property, management of property, payment of debts and expenses, and distribution of trust assets by a Successor Trustee. It is often vital to work with a Trust Administration Lawyer, such as those at CunninghamLegal. Contact us to learn more.

Here on the CunninghamLegal website, you will also find a great deal of advice to Trustees, as well as instructions to original Grantors on educating their future Trustees.

Should You Sell or Keep a Property After a Death?

The decision to keep, rent, or sell a property after someone dies is often difficult, and fraught with emotional issues. There’s plenty to consider besides the sentimental value and who is currently occupying the house—or wants to occupy it. You have to consider the adjusted cost basis, maintenance and management, tax implications, co-owners, and much more.

What are the “pros” of selling? Certainly, you can get immediate cash (assuming all goes well). It’s much easier to divide the estate among multiple heirs. You avoid the maintenance costs. And importantly, depending on the ownership situation, you may be able to get a “step-up basis” in value to avoid later capital gains taxes—which could otherwise be enormous, especially here in California.

What are the “cons”? Aside from the fact that family members may have a strong emotional attachment to a home, there’s the potential for increased value of the long term, the loss of an income opportunity through a rental—and the market conditions may just not be right for a good sale.

Let’s break out some of these factors in a little more detail:

• Adjusted cost basis: As noted above, when someone dies, if it has been properly titled, their property often receives a step-up (or perhaps a step-down) in basis to its fair market value at the time of death. This can eliminate significant capital gains taxes if the property is sold. Basis management is a vital tool in Estate Planning.
• Maintenance and management: If the property is to be rented, how will costs, effort, and profits be distributed? Who will manage the property? Are the heirs willing and able to deal with leaky faucets, tenants, and property taxes? Is the building under rent control? Are there problem tenants that need to be evicted?
• Tax implications: Some states, like Oregon and Washington, have significant death taxes. And California property taxes often jump significantly after death due to reassessment. A qualified CPA can help you calculate the true after-tax return on selling the property taking into account all these factors.
• Primary Residence Exclusion: The child of the deceased owners may qualify for a limited exemption on property tax reassessments that can preserve in whole or in part the parent’s low Prop 13 taxes if they choose to live in the property under California’s Prop 19. It can get complicated, and you should consult a qualified Estate Lawyer.
• Is there a co-owner: A co-owner could be a spouse, family member, business partner, etc. This often complicates inheritance and sales.
• Sentimental value: many family homes, vacation homes, farms, ranches, or other real estate have value beyond the financial. This can make financial decisions much more difficult.

Consider the story of Delta and her son, Echo. Delta owned a rental property for 30 years, which had significantly appreciated in value. When Delta passed, Echo inherited the property with a stepped-up basis, allowing him to sell it without incurring capital gains taxes. Although the property was reassessed, Echo avoided penalties by promptly notifying the assessor and selling the property within a few months. This strategy set him up with liquid assets and saved him a fortune.

For some families, however, selling isn’t the right choice. Emotional attachments to family homes or long-term rental income potential can influence decisions. I’ve worked with many clients who chose to keep inherited properties as rental investments, balancing the increased property taxes with depreciation benefits and rental income. This most likely requires careful analysis with a CPA and financial advisor—as well as a commitment to becoming a landlord.

Overall, it’s vital to consult your A-Team professionals to understand what would be the TRUE, after-tax return on a sale. It’s not always simple to calculate!

Do I Need a Special Broker to Sell an Estate Property?

People selling properties from estates may need help with repairs, hoarding clean-outs, the eviction of tenants, and much more.  A licensed real estate professional should be used, and specialized probate and estate real estate professionals may provide an array of related services, sometimes even fronting the money while taking only the usual commission. Others may offer upfront cash for a quick sale or want to participate in profits. You will likely be contacted by such professionals or buyers quickly after a property owner passes away. If you use a real estate professional or work with such a buyer, move cautiously, check their references carefully, and beware of potential scams.  Contact CunninghamLegal for recommendations on reliable professionals in this realm.

Why Anyone Who Owns Real Estate Should Consider a Living Trust

As you may have noticed, all of the steps in transferring properties are generally simpler if the property is held by a Living Trust, and every person who owns property should consider placing it in a Living Trust before they pass away. A Living Trust is like a bucket where you put your assets—real estate, investments, and more—during your lifetime. Upon your death, the successor trustee manages or distributes those assets according to your wishes. Benefits include:

• Avoiding probate: No court involvement means faster, cheaper, and private administration.
• Flexibility: You can adjust the trust during your lifetime.
• Asset protection: Trust provisions can shield inheritances from divorces, lawsuits, and creditors.

Learn more about Living Trusts as part of good Estate Planning through our many blogs and webinars, and contact CunninghamLegal to get your Estate Plan in order today!

What We Do

At CunninghamLegal, our dedicated lawyers and staff help clients prepare for life’s most pivotal moments—and stand by their side when those moments arrive.

Whether you need assistance with Estate Planning, Trust Administration, Probate, Tax Strategies, Business Law, or other important matters, we’re here to help. With offices throughout California, we make it easy to connect with us through in-person, phone, or Zoom appointments. Call us at (866) 988-3956 or schedule your consultation online today.

Many of our clients tell us they’ve found our legal webinars and blogs insightful and practical.

We look forward to helping you protect and manage your legacy!

Warm regards, Jim

James Cunningham Jr., Esq.
Founder, CunninghamLegal

At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.