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Estate Planning

Selling Dad's House

Where to find help when you're settling a parent's estate.

Jean Poitras lost her father to cancer with only a few months' warning in the fall of 2004. As Robert Eades's only child and the executor of his estate, Poitras, now 51, was charged with clearing out and selling his home of 26 years, in Arlington, Va. When Poitras arrived at her dad's house -- a few hours north of her home near Richmond -- she faced a houseful of furniture and miscellany, plus her stepmother's belongings, which had languished there since her death eight years before. She was uncertain where and how to begin.

Many of us will have to walk through that door after our parents pass on. It's a rite of passage rife with complicated feelings and memories. Siblings may share the work of cleaning out the house, but the executor has the responsibility -- and liability -- for any financial and legal decisions associated with the sale of the home and its contents.

If you're the executor, you may need outside help to divvy up and clear out a lifetime's accumulation of stuff, piece together a financial puzzle, prepare the house for sale and put it on the market.

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A first pass

Getting a handle on your parent's financial life is the first priority. To keep the homeowners policy in force, ask the insurance company to change the name of the insured to the estate; that way, you ensure that property-damage and liability coverage stay in force. Continue to pay the mortgage (if any) and utility bills. As soon as possible, change the locks on the house -- you never know who might have a key.

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Scout through the house for wallets, checkbooks, financial statements, information about safety-deposit boxes, birth certificates, insurance policies, stock certificates, and so on. Did Dad write a will, and do you know where it is? Jeanne K. Smith, a professional organizer in Palo Alto, Cal., says that many seniors don't keep all their paperwork together and may have filed it in unexpected places. Keep any keys you find in one location so that they can eventually be matched to the proper locks.

As Poitras began her Herculean task, she discovered a card in her dad's mail from Debbie Miller, a real estate agent who specializes in "selling the family home." Miller is certified by the National Association of Realtors as a "seniors real estate specialist." She gave Poitras deadlines for various tasks in order to meet an agreed-upon on-sale date. The timeline helped motivate Poitras throughout the lonely weeks of work.

Agents and professional organizers who specialize in estates can do all or part of the work, offer tips for divvying up the mementos and disposing of the detritus of your parents' lives, and -- especially if you are from out of town -- help you find other service providers. Agents will charge their usual sales commission and a per-project fee or hourly rate for managing or performing preparatory work. Most organizers charge $50 to $100 an hour, depending on the size of the project and their level of involvement.

Order out of chaos

Parents who grew up during the Great Depression often adopted a "We might need it someday" attitude and may never have thrown anything out. Plus, age or illness may have made it hard for them to make decisions or act on them. The bottom line: You could have a mountain of stuff to sort through. Organizers advise you to take it one room at a time. For each item, decide whether to keep it, donate it, sell it or trash it.

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The 80/20 rule. If you and your siblings get hung up on the 20% of things with emotional or monetary value, professional organizer Barry Izsak recommends that you set them aside and focus on the 80% no one cares about: the Tupperware and lawn tools.

Pros like Smith and Miller can offer ideas for fairly or creatively dividing things among family members. Or consult Who Gets Grandma's Yellow Pie Plate, published by the University of Minnesota Extension Service ($12.50; www.yellowpieplate.umn.edu).

Be thorough. Look everywhere and in everything. Poitras found $1,100 in cash in a boot. When Izsak closed his parents' home, he gave a piano bench full of music to a neighbor, who returned the $50,000 life-insurance policy he found among the sheaves. Smith has found diamond rings in Band-Aid boxes and stock certificates in folders behind kitchen curtains.

Get an appraisal. If you have doubts about an item's value, hire a personal-property appraiser. Miller knows of a case in which $30,000 worth of 17th-century Japanese prints ended up at the dump. To find a pro, consult the American Society of Appraisers, which accredits its members in three main specialties -- general contents, antiques and decorative arts, and fine arts -- and a slew of subspecialties.

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To reassure distant family members and ease the division of property, Smith has cataloged a home's contents with digital photographs that are keyed to a spreadsheet with descriptions of the items and their appraised values.

Sell or donate. Once family members have retrieved everything they want (or wouldn't want anyone else rummaging through), you can sell the remainder via an estate-sale company. If the value of a home's contents meets the estimator's minimum, the company will advertise and run the sale and remove the leftovers, for a cut of the proceeds (typically one-third, or a minimum of, say, $1,000 to $1,500).

Or you can donate items. If you intend to deduct their value -- on either the estate's tax return or your own (depending on who inherits the items) -- the IRS requires you to have a receipt. You can use online valuation tables (see www.salvationarmyusa.org) or software, such as TurboTax's ItsDeductible, to calculate values.

Prepare for sale

Once you've reclaimed the house, you can deal with its condition. Now's the time to clean, repair and refresh the home, with the goal of de-personalizing it. "You want buyers to think, This is someplace I could move into and start to live," says Miller.

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Hire a cleaning service for an intensive cleaning. Miller suggests painting in two contemporary, earth-toned shades and pulling up old carpets if there are hardwood floors underneath -- even if you don't intend to refinish the floors before showing the house. Remove outdated or worn window treatments, and replace them with mini blinds. Other simple, inexpensive cosmetic updates include painting kitchen cabinets and replacing countertops, faucets and light fixtures.

Poitras spent about $30,000 fixing up her dad's house. In June 2005, after one weekend on the market, the home sold for $50,000 more than she expected. "I was pleased, and I thought my father would have been proud of what we showed," she says. Poitras used her own money plus a life-insurance payout to finance the improvements. But if cash is an issue for you, ask contractors whether they'll accept payment from the funds you receive at closing.

Death and taxes

The taxable value, or basis,of your parent's home will be "stepped up" to its current market value as of the date of death. Ben Jennings, a financial planner in Tacoma, Wash., says that the tax treatment of the sale depends on how the house is used after the parent's death. Generally, as long as the estate owns the house and it's vacant, it's treated as an investment property, not a personal residence. Any appreciation in value accrued by the time of sale is taxed as a long-term capital gain, at 15%. If the home's value falls before it is sold, you can claim a tax-saving loss.

You and other beneficiaries of the estate can divide any gains or losses and report them on your personal income-tax returns (on Schedule D). Many families worry that if they hang on to the house too long, they will incur a taxable gain. But Jennings says the cost of preparing the house for sale and the agent's commission, which you deduct against proceeds of the sale, help offset that.

You will have to file state and federal tax returns for your parent. You'll also need to file a federal estate return if the estate's value exceeds $2 million this year and next, or $3.5 million in 2009. Plus, you may have to file a state estate-tax return. Martin Shenkman, an estate-planning lawyer in Tenafly, N.J., says that in 2004 -- the last time statistics were compiled, when the threshold was $1.5 million -- less than 1% of all estates paid estate tax. (For more on the tax obligations of an estate, see IRS Publication 559, Survivors, Executors, and Administrators.)