The Victorian home above was designed by Celerie Kemble and Kristen Blood of Kemble Interiors. Inherited property may sound like a windfall. But it can actually be complicated and difficult to sort outespecially when youre stressed and grieving a loved one who has passed away. In some cases, this real estate can be expensive for you too. Inheriting your great-aunts vacation house on Nantucket? Great. Inheriting your great-aunts missed mortgage payments and tax bill? Not so great.Depending on how organized your loved one was about financial planning, you may have loose ends to tie up. The way they set up their estate (the umbrella term used to describe all of their property and money) determines how all of their assets will be distributed. To better understand how the process works, including fees you may have to pay, we reached out to financial experts to break it down. Keep reading to learn everything you need to know about inheriting a house, including how and when the property will be transferred to you and what you can do with it. Related StoriesHow Inherited Property Works When a homeowner passes away, their house lands in probate. Probate is a court proceeding that divvies up a deceased persons stuff. It can be a slow process (it could be years before you get to use that Nantucket beach house), and its expensive: There are court fees, appraisal fees, and other expenses involved. You may even have to immediately pay off the mortgage upon inheriting the home. Every mortgage has a due-on-sale clause, and, legally, any transfer triggers it, says Jody Fay, a real estate attorney in New York and Connecticut with more than 20 years of experience. But the reality may be that as long as the lender continues to be paid, they might not enforce the due-on-sale clause. Another downside to probate is that its public record. If your family has any financial dirty laundry, it will be aired for everyone to gossip aboutand suddenly your windfall may feel more like a burden. Benefits of a TrustHomeowners often place their homes in a trust to avoid probate. The main purpose of having a trust is to legally and smoothly transfer a home (or homes) to beneficiaries. Trusts help provide a roadmap for family membersthey spell out the homeowners goals and desires for their property after they pass away, says Caroline McKay, a senior wealth strategist at CIBC Private Wealth with more than 15 years of experience in wealth management.Types of TrustsThere are two types of trusts: revocable and irrevocable. Revocable trusts are controlled by the person who created the trust (the homeowner) and can be changed or amended at any time. In the instance of an irrevocable trust, the homeowner appoints a trustee to control their estate. Both types of trusts keep a house out of probateand save beneficiaries a lot of hasslebut the biggest benefit of an irrevocable trust is that it also protects family members from estate taxes and inheritance taxes. How to Set Up a Trust In order to create a trust, a homeowner will need to hire a trusts and estates attorney. Setting up a trust requires you to shell out some money (experts put this at roughly $5,000, but it can vary based on the complexity of trust), and theres some significant paperwork involved, but its in everyone's best interest. During this process, transparency is key. The more conversations parents can have with their kids before they die about their intentions for their estate will help avoid squabbles between siblings down the road, McKay says. Taxes on Inherited Property You dont have to worry too much about the federal estate tax, which is taken out of the deceased persons estate before you receive the home you inherited. You only qualify for this if your estate is worth more than $13.61 million (so not an issue for the vast majority of people)and surviving spouses are exempt from having to pay that anyway. Only 11 states have estate taxes (Washington, Oregon, Minnesota, Illinois, Maryland, New York, Connecticut, Rhode Island, Massachusetts, Vermont, and Maineplus Washington, D.C.), and the amount varies from state to state.Inheritance taxes are fees you have to pay once the home officially falls under your ownership. There is no federal inheritance tax, and only six states impose inheritance taxesNebraska, Iowa, Kentucky, Pennsylvania, New Jersey, and Maryland. Each state has its own guidelines. As an example, according to the Pennsylvania Department of Revenue, in Pennsylvania there is a 0 percent tax for transfer to a spouse; 4.5 percent tax to direct descendants (kids, grandkids); 12 percent if the house is going to a sibling; and 15 percent if the home is left to some other type of heir. Should You Sell the Home or Keep It? Inheriting a house also means potentially inheriting a mortgage, home equity loans, and liens, along with whatever issues it may have (a leaky roof, cracked foundation, and so on). You can also get slapped with a capital gains tax if you sell. The capital gains tax is 20 percent of the difference between the value of the house at the time the person died and the price you sold the house for, says Philip Camporeale, CPA, an accountant in Staten Island, New York. In other words, if the house was appraised at $1 million, and you sold it for $1.2 million, you would owe $40,000 in capital gains tax. So there are costs to consider. On the bright side, if your loved ones house is in good condition, selling it can provide you with a nice nest egg. Or it may make more financial sense to sell your current home and move into the house, especially if its paid off or has a much lower mortgage rate, which can make it more affordable to live in. Many people move into homes that they inherit, says Lisa Ninow, principal broker at Stone Edge Real Estate in Park City, Utah, who points out that this can be an especially good option in the current market, with housing prices being so high. You could sell your house and make a profit, then move into this other house that you now own.Joint OwnershipThings get more complicated if you have siblings and inherit the house together. In that case, youll have to work out who will keep the house, if you are going to share it, or if you and your siblings are going to sell it. An owner will usually include provisions in a will or trust about their intent for how the real estate should be owned or used. For example, if one child is currently living in the house and the intent is for that child to continue living in the house after the parents death, the estate plan may include provisions specifically leaving the house to that child and equalizing the other siblings with other estate assets, says McKay. Selling the house and dividing the profit evenly is a good way to dodge the potential relationship-ending fights that can occur in these situations, but sometimes siblings do choose to co-own the house (as in, you get the house in Jackson Hole for December break, and well take it for President's Day weekend), or one buys the other(s) out. This entails hiring a real estate lawyer and having the house appraised. After that, the sibling who wants the house agrees to pay the other(s) their share of the fair market value of the home.Some people choose to hold onto houses that they inherit without living in them. If you like the house or its location but your job or your kids prevent you from moving across the country to live in it, consider renting it out for a while. This is especially wise if the home is in a place that you might like to retire someday, like in Florida, or in a vacation spot. And sometimes people just like to keep a special house in the family. You can't put a price tag on the sentimental value of the beloved house you grew up in or the beach house full of so many fond summer memories. Follow House Beautiful on Instagram and TikTok.