The Guide to Selling Inherited Property in Illinois

Thinking about selling inherited property in Illinois? If so, you’re not alone. In fact, according to one recent study, the vast majority of people who inherit a home from their parents will end up selling it.

There are several reasons for this, but the “why” isn’t nearly as important as the “how.” This comprehensive guide is designed to cover everything you need to know about selling an inherited home in Illinois. 

What Is Inherited Property?

Inherited property refers to anything that is passed down from a deceased person to their beneficiaries or heirs. This can include just about anything, from personal items that only have sentimental value to bank accounts, investments, furniture, vehicles, and homes. 

In Illinois, inheriting property typically involves a legal process known as probate. This is when a court oversees the management of the decedent’s estate, including the settlement of any outstanding debts and the distribution of assets to the appropriate individuals.

To make the process of selling inherited property in Illinois as simple and straightforward as possible, it’s important to understand the legal and financial implications of doing so.

What to Do When You Inherit Property in Illinois

Initiate the Probate Process

To initiate the probate process in Illinois, you’ll need to file a petition with the clerk of the county in which the deceased owner most recently resided. This must be done within 30 days of the date of death. 

Along with the petition for probate, the person acting as a representative must also file a few other documents to process. These documents include Petition for Letters of Office, Oath and Bond of Representative, Affidavit of Heirship, and Order Declaring Heirship.

The probate process can take anywhere from six to twelve months, although it could take longer if there are any disputes, unanticipated issues, or other factors that must be resolved.  

During this time, it’s essential to stay as organized as possible.

Conduct a Property Assessment

Once the probate process has officially begun, you’ll want to start assessing and assigning value to the inherited property. 

In the case of an inherited house, it’s crucial to get a professional appraisal as soon as possible. This will help determine the property's fair market value and establish the home’s tax basis, which will come into play once the property is sold. (We’ll go into this in more detail below.)

Start Preparing the Property for Sale

Next, you’ll need to determine whether you’d like to sell the home As-Is or invest in any necessary repairs or renovations. Most people who inherit homes try to sell as quickly as possible to limit the amount of time and money they’ll need to invest. 

If you do decide to fix the place up, understand that you will be responsible for its financial upkeep until it’s sold. This may include expenses such as property taxes, mortgage payments, maintenance costs, and more.

Legal Implications of Selling Inherited Property in Illinois

Transfer of Ownership and Title

In Illinois, the heir or beneficiary must provide proof of inheritance, create a new deed, and complete a real estate transfer declaration form in order to have ownership of the property transferred into their name. This process is typically handled during probate and must be completed before the property can be sold.

Settle Debts and Clear Property Liens

In many cases, an inherited home comes with outstanding debts, such as a mortgage or unpaid taxes. There may also be liens on the property. These issues must be settled prior to selling. 

Start by requesting a payoff statement from the mortgage company and check with the county records office to determine if there are any obligations, such as outstanding property taxes or liens. 

Disclosure 

Illinois law mandates that all sellers disclose certain information about a home’s condition. Specifically, it is required that all material defects that could impact the home’s value or safety be revealed to potential buyers in advance. Failure to do so could result in serious legal consequences.  

Material defects could include any of the following:

• Defects in specified structures, components, and systems
• Past flooding and flood risk
• Unsafe conditions
• Boundary line disputes
• Municipal code violations
• Environmental issues

These disclosures must be provided in writing via a residential real property disclosure report.

Financial Impact of Selling Inherited Property in Illinois

Taxes

• Transfer Tax: A transfer tax is a government fee that covers real estate ownership changes. In Illinois, transfer tax is levied at a flat rate of $0.50 for every $1,000 of the sale price.  
• Property Tax: Like any other real estate, inherited property incurs property tax. The property tax rate in Illinois varies, but the average rate is 2.08% of the home’s assessed value.
• Estate Tax: If the value of your property exceeds $4 million, Illinois imposes an estate tax, which ranges from 0.8% to 16%. The federal government also levies an estate tax on properties valued above the exemption limit. 
• Inheritance Tax: Only a few states impose an inheritance tax. Fortunately, Illinois is not on that list.
• Capital Gains Tax: This tax is assessed on the amount the property has increased in value from the date of the deceased owner’s death to the date of the sale. Capital gains taxes are payable in the year in which the property is sold.

Additional Expenses

• Repairs/Renovations: If you choose to renovate or repair the property before selling it, you will be responsible for any and all expenses associated with that.
• Ongoing Upkeep: The heir(s) are responsible for staying on top of ongoing expenses until the property sells. This includes things like utilities, insurance, property taxes, and maintenance costs.
• Real Estate Commissions: If you decide to work with a real estate agent, you can expect to pay a commission. This is typically around 5-6% of the selling price. 
• Closing Costs: Closing costs cover the logistics of selling, such as attorneys’ fees, title insurance, and recording fees. In Illinois, these typically run between 6-9% of the sale price.

Documents Required for Selling Inherited Property in Illinois

Before you can proceed with the sale of the property, you’ll need to collect and prepare all the required paperwork. In Illinois, this includes the following:

• Proof of Ownership: First, you’ll need to demonstrate that you are legally able to sell the property. As the heir or beneficiary, you will receive this documentation at the conclusion of the probate process.
• Death Certificate: Some of the parties involved in the sale of a home, such as the title company or mortgage lender, may require a copy of the deceased owner’s death certificate.
• Property Title Records: In Illinois, you cannot sell a home without a clear title. This includes proof that the title has been transferred to your name, and that there are no outstanding liens on the property.
• Property Tax Records: You may also be required to show proof that all taxes associated with the property have been paid. 
• Seller Disclosure: As mentioned above, Illinois requires all sellers to disclose in writing the condition of the property. 

Options for Selling Inherited Property in Illinois

When it comes to selling an inherited property in Illinois, there are a number of options. The three most common include:

For Sale by Owner (FSBO)

First, you can sell your home on your own. This means no real estate agent, which also means no commissions. It also means you’ll be on your own for the entire process. Here are a few pros and cons of FSBO:

Pros: 

• Save money by avoiding commissions.
• Maintain greater control over the process.

Cons:

• Selling a home on your own can be time-consuming and complicated.
• You’ll be responsible for marketing the property, negotiating a price, and more.
• Unexpected tax and legal issues could potentially arise.

Real Estate Agent

Another popular option is working with a real estate agent. Of course, this option also comes with its own benefits and downsides.

Pros:

• Experience and access to resources can make the process faster and easier.
• A skilled negotiator can get you the best possible price.
• Paperwork and documentation know-how will ensure tax and legal compliance.

Cons:

• Commission costs and other fees can significantly eat into your profits.
• Lack of control over the process.
• Traditional home sales can take a long time, especially if the market isn’t great.

Cash Buyer / Real Estate Investor

The third option is to work with a cash buyer. These sales are usually completed much more quickly than traditional sales, but they do have their own advantages and disadvantages to consider.

Pros:

• No commissions and, with the right buyer, no closing costs, which means more money in your pocket. 
• Sell quickly—in as little as 7 days.
• No need to invest in repairs/renovations (sell the property As-Is).

Cons:

• Sale price may be slightly below the market average. 
• Less room to negotiate.
• Potential for scams if you’re not careful about choosing a reputable investor.

Challenges to Selling Inherited Property in Illinois

Here are a few common concerns that arise with inherited property so you can prepare for them in advance.

Multiple Heirs

Inheriting a house with multiple other people can make for a complicated situation. Things can get even more sticky if one or more of the other owners decide they don’t want to sell or refuse to sign probate. 

Selling inherited property in Illinois does not require agreement by all owners, however, you may need to get the courts involved. This is typically done through a formal legal process known as a partition action. 

Even if all owners agree to sell, deciding when and how to do so can create a whole new set of problems. 

If you’re one of multiple heirs and are at a standstill on how to move forward, enlisting the help of an experienced mediator may be your best option.

Title Issues

People who inherit property often find themselves having to settle outstanding debts, negotiate with creditors, and deal with liens and other legal issues. 

If you’re struggling with a particularly complicated situation, a real estate attorney who is experienced in these types of sales can help guide you through the process. 

Poor Property Condition

Unfortunately, it’s not uncommon for a property that is passed down to be in poor condition at the time of inheritance. This often occurs when the deceased owner was elderly or in failing health and unable to keep up with the property’s care.

If the home you’ve inherited is in serious disrepair, you could be looking at out-of-pocket expenses in the tens of thousands of dollars just to bring it up to sellable condition. Then there are the costs associated with maintaining the home while you’re in the process of fixing it up. 

This is one of the main reasons people who inherit property in Illinois choose to sell to a cash buyer. While the sale price may be slightly below market value, this can easily be offset by not having to invest in repairs or renovations. And since these transactions tend to be quick, there are also fewer maintenance expenses to worry about.

With some investors (like House Buyers of America), you may not even have to remove the belongings from inside the property. This is especially ideal for hoarding situations. The seller gets to walk away, and the buyer handles the clean-out. 

Avoiding Probate Court in Illinois

Most inherited properties in Illinois must go through probate, which takes time and can be costly. Fortunately, there are a few ways to avoid this:

• Revocable Living Trust: This type of trust allows the owner to maintain control over the property while they are living and then transfer it to their heir(s) upon death. Placing assets in a revocable living trust bypasses the probate process and transfers the property directly to the inheritor(s).
• Joint Ownership with Right of Survivorship: If you own the home with someone else, you can set up a Joint Tenants with Right of Survivorship. This is a legal arrangement through which the surviving owner automatically inherits your share of the property upon your death, without having to go through probate.
• Transfer on Death Instrument: A Transfer on Death Instrument (TODI) allows the property owner to directly transfer ownership of the home upon their death without the need for probate. 
• Gift the Property: In Illinois, a homeowner can gift their property to someone, which essentially transfers ownership. Keep in mind, however, that there are a lot of legal and tax considerations with this type of transaction.

Most of these things must be completed prior to one’s death. If you are in the process of planning your estate and are considering one of the above strategies to help your heirs avoid probate, we strongly suggest consulting with an experienced estate attorney and/or a qualified financial advisor.