Complete Guide to Selling Inherited Land in California

I inherited property in California, what should I do first?

If you have inherited property, the first step is to get clear title to the land. Clear title means that you are the legal owner of the property and you can sell it or do whatever you want with it.

To get a clear title, you will need to go through the legal process known as probate unless you meet one of the exceptions.

What is probate?

Probate is the legal process of administering the estate of a deceased person. This includes collecting the assets of the estate, paying the debts of the estate, and distributing the assets to the heirs.

In the state of California, probate is handled by the district court in the county where the deceased person resided.

Why is probate needed?

Probate is needed to ensure that the assets of a deceased person are distributed according to their wishes. It also protects the interests of the heirs and creditors of the estate.

Without probate, anyone could claim to be the rightful heir to the deceased person's assets. This could lead to disputes and could delay the distribution of the assets. Probate helps to ensure that the assets are distributed fairly and quickly.

How to avoid California probate court

Often, real estate in California has to go through probate when someone passes away. There are a few exceptions to the general rule that real estate must go through probate, including the following:

• Real estate that is held in joint tenancy. Joint tenancy means the owners have equal shares of the property. If one owner dies, the surviving joint tenant(s) automatically receive the deceased’s share. An example of this would be parents adding their children as joint tenants so that their children can inherit the property without probate. 
• Surviving spouse or domestic partner. If the property is held in joint tenancy or as community property with right of survivorship, probate may be avoided. This is common for married couples and registered domestic partners.
• Real estate that is owned by a trust. If the property was held in a living trust, then the property can be transferred to the person listed as a beneficiary without probate.
• The value of the entire estate or the value of the real estate is below a minimum threshold. Probate can be avoided if the entire estate value or the real estate is below a minimum threshold. To use either of these procedures, a court-appointed probate referee will need to appraise the property. For the latest thresholds, refer to the forms published by the Judicial Council of California.

If the real estate does not fall under one of these exceptions, it will likely have to go through probate. The executor or administrator of the estate will be responsible for transferring the property to the heirs or beneficiaries.

Probate process - understanding inheritance laws in California

Here are the steps for probate in California.

Opening the case

• File a petition to open probate. File the forms in the county where the decedent lived or where they owned property if they died outside of California. At this time you’ll be provided a court date. 
• Provide notice. The decedent’s family members will be notified by mail and notice will be placed in a local newspaper.
• Attend court date for appointing a personal representative. Once satisfied with the petition and notification, the judge may appoint a personal representative. Next, the administration of the estate can begin.

Administering the estate

• Prepare an inventory of the estate. An inventory of the estate is a list of all the assets and liabilities of a deceased person. Prepare this inventory on form DE-160 for filing
• Notify creditors and pay debts. Notify creditors using form DE-157. If the estate has money, the personal representative will pay any outstanding debts of the estate.
• Prepare a tax return. A final personal income tax return must be filed for the decedent.

Closing the estate

• Petition for final distribution. When the estate is fully administered, the personal representative will file a final report and account and request distribution.
• Attend court date for distribution. At this hearing, the judge will decide whether to approve the final distribution of the remaining assets to the beneficiaries.

Once the estate is settled, you'll be able to get title to the property and also allow you to sell it.

How long will California probate take?

The length of time it takes to complete a probate in California can vary depending on a number of factors, including the size and complexity of the estate, the number of heirs, and whether or not there are any contested issues. Creditors in California have four months after the first issuance of letters to a general personal representative, or 60 days after the creditor receives notice of administration to file a claim. In general, however, a probate in California can take anywhere from six to eighteen months to complete, or even longer.

How much does probate cost?

Probate involves expenses of administration which include:

• appraisal fees
• newspaper publication charges
• court costs

There may also be attorney fees. In California, attorneys are entitled to charge an amount based of the value of the estate, as follows:

• 4% on the first $100,000
• 3% on the next $100,000
• 2% on the next $800,000
• 1% on the next $9 million
• 5% on the next $15 million

For example, an estate valued at $600,000 could incur a legal charge of $15,000: $4,000 on the first $100k, $3,000 on the second $100k, and $8,000 on the remaining $400k.

Inheritance tax and capital gains tax in California

Landowners often wonder how inherited property is taxed. Fortunately, there is no inheritance tax in California. There is a federal estate tax, but this is only triggered for inheritance worth several million dollars.

But you may have to pay capital gains tax. A capital gain is when you sell property for more than its tax basis. When you inherit real estate, the property’s tax basis readjusts to fair market value. That means that if you sell a property right away at market value, you would owe little or no capital gains tax.

Short-term capital gains will apply if you sell the property with a gain less than a year after inheriting. Long-term gains will apply if you sell the property after a year or more. The taxable amount would be the difference between the property value at inheritance and the sale price. The federal tax rate on capital gains is 0%, 15%, or 20%, depending on your tax bracket and filing status.

You may have to pay capital gains tax at the state level as well. Long-term capital gains tax rates in California range from 0% to 13.3%, depending on the taxpayer’s income level.

Sell inherited property as-is

Once you’ve decided to sell the land, there are three options for selling your California land.

List it with a real estate agent

A real estate agent can help you list your land on the MLS and find potential buyers. They can also negotiate the sale price and handle the paperwork. However, it can take a long time to sell vacant land, and there's no guarantee you'll find a buyer. You may also have to invest in cleaning up the land before it's ready to list for sale.

Sell the land by owner

You can save on real estate agent commissions by selling your land yourself. You can list your land on websites like Zillow and Trulia, or you can put up signs in the area where the land is located. However, you'll be responsible for all the paperwork, dealing with potential buyers, and negotiating contracts. This can be a lot of work, and it may not be worth it if you're not familiar with the real estate market.

Sell to a cash buyer

Cash buyers like our company are willing to buy land quickly and without any contingencies. This can be a good option if you need to sell your land quickly, but you'll likely have to sell it at a discount.

Still, you may just want to move on from the property you've inherited. The convenience of selling hassle-free may be more important than getting the full market price. It's also the fastest way to sell vacant land - the whole process typically takes less than two weeks to sell land. If you like the idea of selling your inherited land quickly, consider requesting a cash offer today.

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Sources:

California Courts Self-Help Guide: https://selfhelp.courts.ca.gov/probate/

Sacramento County Public Law Library: https://saclaw.org/

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Please consult your financial advisor, accountant, real estate attorney, or tax specialist. This article is for informational purposes and is not tax or legal advice.