Don’t be emotional about the property you inherit6 min read . Updated: 29 May 2019, 08:58 PM IST
- The asset becomes a part of your overall financial portfolio, so evaluate if it fits in
- To claim the asset, you may need to apply for probate of Will or letters of administration or succession certificate
Most people inherit properties in their lifetimes. It’s not always easy to deal with the inheritance as it usually comes along with the loss of a loved one. But it’s important to overcome the emotional trauma and put to good use the properties your loved ones left you.
Remember that not being systematic can create problems for you later. So the first step is to carry out basic hygiene checks. You need to ensure that the property is transferred in your name legally and all the paperwork is carried out. After that, check if there is any unpaid property tax or any loan liabilities that need to be taken care of.
Once all of this is out of the way, you will face the daunting task of figuring out what to do with the inherited property—whether to sell it, rent it out, hold it or live in it. What you do with it will depend on individual circumstances, but if you are unsure about how to go about it, help is at hand. We give you the various options you can explore, after getting the basics out of the way.
Basic hygiene checks
Claiming the title: Whether you inherit a property under a Will or under the personal law applicable to you from a relative who has died without a Will, you need to consult a lawyer to complete the formalities of proper transfer of assets.
“To claim the asset, you may be required to apply for a probate of the Will or letters of administration or a succession certificate from the court. If there is no dispute among the successors, you can take control of the assets easily," said Rajesh Narain Gupta, managing partner, SNG & Partners, a law firm.
It is also important to get the mutation of the property done in government records. Mutation of property is the change of title ownership. Mutating a property is not just compulsory when you buy and sell a property, it is also needed after the death of an owner, if you are an heir. “Mutation of property title is an important step, which happens once the relevant orders are obtained from the court. Some states like Delhi accept the registered Will and on the basis of the Will and other documents, mutate the property. Mutation needs to be applied and done in land revenue records, and also with the municipal authorities responsible to collect property tax. Each authority has a prescribed list of documents for this purpose," said Gupta.
Settling liabilities: When you inherit a property, you also inherit all the liabilities that come with it. This means that the onus of settling the home loans, if any, and any unpaid property tax will be on you. “The liability to repay the loan will be either decided by the Will or according to the share in inherited property. The liability of property tax shall also be decided accordingly," said Ankit Agarwal, managing director, Alankit Ltd, an e-filing intermediary.
If there is a home loan, get in touch with the relevant bank and evaluate how much you need to pay. You can negotiate with the bank and decide to pay in a lump sum or EMIs. In case there is a home loan insurance, get in touch with the insurance company with the required documents. Here, the liability of paying off the loan is on the insurer and not you.
Property tax is usually paid to the local state government or the municipal corporation depending on where the property is. Get in touch with the local government authorities to assess how much property tax you owe, and ensure all taxes are duly paid, to avoid any legal notice.
Maintaining a property
Maintaining a property might be hard if you stay in another city, especially if it’s an older property. You may be required to take multiple trips to the place where the property is situated to take care of the property. This could become way more difficult if you are living out of the country.
One way is to take the help of friends and relatives, but that may not always be a good idea. Under adverse possession laws, the occupant can claim the property if you don’t claim it within 12 years. If you fail to register a complaint against the occupant illegally occupying your property for 12 years, then the squatter would get ownership rights over that property.
Another option is to hire property management companies that help you maintain your property, collect rent, and so on. “Property management companies are professionally run companies that can feel like a blessing for landlords who need to manage their properties remotely. They take care of the management, upkeep, renting, etc., of these properties. Many such properties are today being used as co-living properties," said Mani Rangarajan, group chief operating officer, Elara Technologies Pte Ltd, company that owns online real estate portals Housing.com, PropTiger.com and Makaan.com.
But the concept of property management is fairly new, so do your due diligence before zeroing in on a company. “When dealing with these companies, owners should get contract terms like lock-in period, rental amount, damage insurance, terms of exit, etc. properly checked by lawyers," said Amit Kumar Agarwal, chief executive officer and co-founder, NoBroker.com, an online real estate rental firm.
Also, if your property is part of a larger land parcel that has been inherited by other relatives, selling the property might get difficult. There might be shared passages, common boundaries or your piece of land might be in a very disadvantageous place, where selling might become hard. “If the title outlays a portion of land or plot or property in some other individual property or land or plot, then an NOC will be required from the concerned person before selling the land," said Shalin Raina, managing director, residential services, Cushman and Wakefield India, a real estate consultancy firm.
Sell, rent or hold?
When dealing with an inherited property, don’t let emotions affect your decision. Rather, evaluate each option individually and see what makes sense financially.
“The rental yield in India in most locations is just 2% of the current property price. Apart from that, there are hassles in terms of property maintenance, vacancy periods, collecting rent, dealing with brokers etc. One needs to truly evaluate if the property is really worth keeping. Else, liquidating it may be a much better idea. A financial asset can give at least 5% or more post-tax returns per annum, with very little hassles," said Suresh Sadagopan, founder, Ladder 7, Financial Advisories, a financial planning firm.
Holding a property and keeping it vacant might not be a good idea. “It makes sense if the person or their children may have some use for it in future," said Sadagopan.
Remember that the property you inherit becomes a part of your financial portfolio, so evaluate your asset allocation and see if it fits into it. “The property after inheritance needs to be woven into the original financial plan of the family," said Deepali Sen, founder, Srujan Financial Advisors, a financial planning firm. “Also, if the inheritor already has an outstanding loan, this amount should be deployed for servicing that; the logic being that interest is a sunk cost (and it is more than the tax saving on the loan taken) and should be discontinued at the earliest," added Sen.
Once you sell the property, make sure the proceeds are invested in line with your financial goals. Selling an inherited property can be an emotionally difficult decision, but if you are unable to take the stress of maintaining it, it’s the best option.