Inheriting a house with a debt in 2021 or 2022? A mortgage or residual debt is always a possible danger with an inheritance. Inheriting a house with a debt and undervalue often occurs without the heir being informed in advance. If there is a mortgage upon death, who inherits the residual debt or does the debt expire? What is the best way to act or finance the debt? The tax authorities quickly withdraw their hands from a house that has no equity, but a residual debt. If there are no other assets, you do not pay tax on the inheritance. You are left with a debt and are pursued by a bank that would like to see the debts repaid. If you do not live in the house, it is a residual debt in box 3 of the income tax. But there is a solution: reject or refuse the inheritance in time.
A house with residual debt in the inheritance, undervalue instead of overvalue
Suppose you inherit a house from a parent with a residual debt. What do you do as a child? Do you accept the inheritance or do you renounce the inheritance? A home may still have a paper residual debt in 2021 and 2022. This means that the estimated value of the home is lower than the mortgage on the home. This is especially noticeable by people who have bought a house in the last few years, but also by people who have maintained their house less well. The residual debt is not that bad, as long as the mortgage interest is paid. Things are different when a house with residual debt has to be sold or if the inheritance consists of a house with residual debt, because then the debt is transferred to the heirs.
Inheriting the parental home in the estate
There are usually many memories attached to the parental home and that is why children do not want to leave their parental home. But a legacy is more than leaving and acquiring memories. You will also have to look at the matter financially:
- If there is sufficient assets in an estate, you will have to pay inheritance tax.
- If an inheritance contains insufficient equity or even mainly debts, the inheritance is tax-free, but you are still left with the debts.
Beneficially accepting an inheritance or rejecting an inheritance in case of high mortgage debt
The question soon arises whether you want to accept an inheritance. If you are not sure whether this will work out well for you financially, you can accept an inheritance on a beneficiary basis, which means that you do not say yes or no yet, but first want to know what the inheritance is worth. An inventory will then be made to determine the value of the inheritance. If you are sure that there are more debts than assets, you can refuse and reject the inheritance. You make both statements at the court. If there is also a will, you can discuss with the notary what is a sensible choice for you.
Who pays the residual debt in the event of death?
If someone dies with a residual debt, the debt is transferred to the heirs who accept the inheritance. If the inheritance is rejected, the debt can be passed on to the sixth generation in succession and if this is also rejected, the inheritance reverts to the State. If the State receives the inheritance containing a house with residual debt, the house will probably be sold by auction. The bank will then be able to submit its claim to the State.
Who will pay the mortgage if you do not refuse the inheritance?
The heirs become responsible for the mortgage costs and so the bank will recover the mortgage interest and repayments from the heirs. Sometimes selling the house is the only solution to pay off the mortgage, but a residual debt may also arise.
Is inheriting a house with residual debt bad?
It remains to be seen whether inheriting a house with residual debt is a bad thing. The heir can choose whether and how he will accept the inheritance and the bank will ultimately get his money. In that sense, it is annoying for the bank that it can take a while before the inheritance is fully settled. The fear that some elderly people have that they are burdening their children with debt is only partly true. The children can also simply reject the inheritance. The residual debt could perhaps have been avoided by the testator by paying more off the house, but unfortunately that money is not always available.
Conclusion: inheriting a house with debt
If you suspect that the inheritance will not yield sufficient income and that a house is not worth enough to repay the mortgage, you can consider not accepting the inheritance or conditionally through a beneficiary acceptance. It is estimated that in 2021 and 2022, a few thousand people will inherit a house with possibly a residual debt. So make sure you are well informed financially about the consequences of accepting an inheritance.
- How much equity or residual debt does my house have?
- Rejecting inheritance
- Beneficial inheritance: disadvantages?