When someone dies, there can be a lot of questions about who gets what, especially if there’s a house in the mix. An often overlooked issue is who is responsible for paying property taxes when the owner dies. An overdue property tax bill could result in a lien on the home or, worse, tax foreclosure. It is the job of the deceased person’s executor to ensure that property taxes – and any other outstanding debts – are paid when finalizing their estate. If you’re ready to create an estate plan, a financial advisor can help.
Understand what happens to property taxes when someone dies
When a person dies, their debts do not automatically disappear. Any unpaid financial obligations must be paid, either from the proceeds of their estate or by persons jointly and severally liable for the debts.
For example, if a husband and wife both take out a $30,000 car loan and one of them dies suddenly, the other spouse is responsible for the remaining debt since they are co-borrowers. The same would apply to other co-signed loans, including mortgages and private student loans or joint credit card accounts.
Property tax bills that are unpaid when a person dies must still be paid. Failure to pay property taxes can result in a lien being placed on the property. The body responsible for collecting the property taxes could go further and seize the house. In this case, the house could then be auctioned off to the highest bidder.
Who is responsible for paying property taxes when the owner dies?
The executor of a deceased person’s estate is responsible for ensuring that all remaining property taxes are paid upon the death of the owner. An executor may be named in a will or, if there is no will, he may be appointed by the court. Any interested party can apply to probate court to become the executor when not named in a will.
When it comes to where the money to pay property taxes comes from when someone dies, the answer is usually the estate itself. There are different ways to handle this, depending on how the person has structured their estate plan.
For example, they could specify in their will that certain assets in their estate should be used to pay property taxes. If they created a trust as part of their estate plan, they could also allocate assets within the trust to cover remaining tax bills. In this case, a trustee, not an executor, would be responsible for making sure the taxes are paid.
If there are no assets set aside to pay property taxes, the executor or trustee could use estate assets to do so. For example, they can withdraw money from the deceased person’s bank account or sell tangible assets to raise the money needed. This could even include selling the home itself to pay the tax bill if the will or trust doesn’t specifically prohibit it.
Some assets are beyond the reach of an executor or trustee when settling an estate. For example, if your parents name you as the beneficiary of a life insurance policy or a retirement account, that money will go directly to you when they die.
Are beneficiaries or heirs liable for property taxes upon the death of an owner?
Inheriting a home from someone does not necessarily make you liable for property taxes immediately. Again, the responsibility for paying taxes would rest with the executor until legal title passes to you.
However, once the property is in your name, you will need to pay any property taxes due, including overdue amounts, current bills and future bills. The only exception would be if the owner’s will or trust directs the executor or trustee to pay all debts associated with the home before it is transferred to you. How quickly title to a home transfers after death may depend on where you live.
If someone dies without a will, their heirs receive their assets according to state inheritance laws. The person who owns the home under state law would be responsible for paying property taxes once title is transferred to them.
What if you have no heirs? In this case, the house becomes state property. The state could then sell the house and use the money from the proceeds to pay any outstanding taxes.
Accounting for Property Taxes in an Estate Plan
If you don’t want to leave your heirs a property tax burden when you die, there are some things you can do now to make sure that doesn’t happen. The easiest way to do this is to include a provision for dealing with property taxes in your will.
You can name an executor and leave instructions on what assets they should use to pay property taxes. You can also ask them to pay taxes on estate assets before distributing the remaining assets to your beneficiaries. If you are concerned that there are not enough assets to cover the tax bill, you can also state that it is acceptable for them to sell the house if necessary.
If you put your house in trust, you can do the same in the trust document. This includes ordering the trustee to pay property taxes on trust assets or requiring the beneficiary to pay taxes before they can inherit the property. Talking to a financial advisor can help you decide what might be the best option.
You can also purchase a life insurance policy just to cover expenses or final debts, including property taxes. Instead of naming a loved one as the beneficiary of the policy, you can name your estate instead. This way, you can be assured that the executor will have the funds they need to cover property tax bills once the probate process is underway.
The essential
Unpaid property taxes can make it difficult to settle an estate after the death of an owner. If you own a home that you intend to pass on to someone else, planning early can help your beneficiaries avoid financial hardship once it’s time for them to inherit the property. House.
Tax planning tips
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Working with a financial advisor to flesh out an estate plan can make it easier to distribute your assets while accounting in advance for any debts you may leave behind. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three approved financial advisors who serve your area, and you can have a free introductory call with your advisor to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goalsstart now.
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If you don’t already have a will, you may want to consider making one so you can specify how you want property taxes to be handled upon your death. You can work with an estate planning attorney to write a will or write one online. There are a number of affordable online will writing software options that you can use to write a basic will. Just keep in mind that once you’ve made the will, you’ll usually need to have it witnessed and notarized for it to be considered legally valid.
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