When someone passes away, there can be plenty of questions over who gets what, especially if there’s a home in the mix. An often-overlooked question centers on who is responsible for paying property taxes when the owner dies. A delinquent property tax bill could result in a lien against the home or worse, a tax foreclosure. It’s the job of the deceased person’s executor to make sure 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.
Understanding What Happens to Property Taxes When Someone Dies
When someone passes away, their debts don’t automatically disappear. Any outstanding financial obligations must be paid, either from the proceeds of their estate or by individuals who are jointly responsible for debts.
For instance, if a husband and wife both sign off on a $30,000 car loan and one of them dies unexpectedly, the other spouse is responsible for the remaining debt since they’re co-borrowers. The same would be true for other co-signed loans, including mortgages and private student loans or joint credit card accounts.
Property tax bills that are outstanding when someone dies must still be paid. Failing to pay property taxes can result in a lien being placed on the property. The agency responsible for collecting property taxes could go a step further and foreclose on the home. In that case, the home could then be sold at auction 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 making sure that any remaining property taxes are paid when the owner dies. An executor can be named in a will or if there is no will, they can be appointed by the court. Any interested party can petition the probate court to become the executor when one isn’t named in a will.
In terms of where the money comes from that goes to pay property taxes when someone dies, the answer is typically the estate itself. There are different ways this can be handled, depending on how the person structured their estate plan.
For instance, they might specify in their will that certain assets in their estate should be used to pay property taxes. If they’ve set up a trust as part of their estate plan, they could also allocate assets within the trust to cover any remaining tax bills. In that 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, then the executor or trustee could use assets from the estate to do so. For instance, they might draw money from the deceased person’s bank account or sell tangible assets to raise the money that’s needed. That could even include selling the home itself to pay the tax bill if the will or trust doesn’t specifically disallow it.
Certain assets are beyond an executor or trustee’s reach when settling an estate. For example, if your parents named you as the beneficiary to a life insurance policy or retirement account, that money would come directly to you when they pass away.
Are Beneficiaries or Heirs Responsible for Property Taxes When an Owner Dies?
Inheriting a home from someone doesn’t necessarily make you responsible for any property taxes right away. Again, the responsibility for paying taxes would fall on the executor until the legal title is transferred to you.
However, once the property is in your name, you’d have to pay any property taxes owed on it, including past due amounts, current bills and future bills. The only exception would be if the property owner’s will or trust directs the executor or trustee to pay any and all debts associated with the home before it’s transferred to you. How quickly a home’s title is transferred after death can depend on where you live.
If someone dies without a will in place, their heirs receive their assets in accordance with state inheritance laws. Whomever the home goes to under state law would be responsible for paying property taxes once the title is transferred to them.
What if you have no heirs? In that case, the home becomes the property of the state. The state could then sell the home and use money from the proceeds to pay any remaining taxes due.
Accounting for Property Taxes in an Estate Plan
If you don’t want to leave your heirs with a property tax burden when you pass away, there are some things you can do now to ensure that doesn’t happen. The easiest way to do that is by including a provision for handling property taxes in your will.
You can name an executor and leave directions on which assets they should use to pay the property taxes. You can also direct them to pay the taxes from estate assets before distributing any remaining assets to your beneficiaries. If you’re concerned that there may not be enough assets to cover the tax bill, you can also state that it’s okay for them to sell the home if necessary.
If you’ve put your home into a trust, you can do the same thing in the trust document. That includes directing the trustee to pay property taxes out of trust assets or requiring the beneficiary to pay the taxes before they can inherit the property. Talking to a financial advisor can help you decide what the best option might be.
You could also buy a life insurance policy just to cover final expenses or debts, including property taxes. Instead of naming a loved one as the beneficiary to the policy, you could name your estate instead. That way, you can be assured that the executor will have the funds they need to cover property tax bills once the probate process gets underway.
The Bottom Line
Unpaid property taxes can add a wrinkle to the settlement of an estate after a homeowner passes away. If you own a home that you intend to pass on to someone else, early planning can help your beneficiaries avoid financial hiccups once it’s time for them to inherit the home.
Tax Planning Tips
- Working with a financial advisor to flesh out an estate plan can make it easier to decide how to divide your assets while accounting in advance for any debts you might leave behind. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you don’t have a will yet, you might want to consider making one so you can specify how you want property taxes to be handled when you pass away. You can work with an estate planning attorney to draft a will or make one online. There are a number of affordable online will-making software options that you can use to make a basic will. Just keep in mind that once you make the will, you’ll typically need to have it witnessed and notarized for it to be considered legally valid.
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Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.