Your parents owned rentals. Now you own them, along with the people living in them: people you did not screen, on rents you did not set. The first question most heirs ask is whether the leases die with the owner. Jason Gaudy, an estate planning and probate attorney at Gaudy Law in Upland, California, answers that one quickly, and it is not what people hope to hear.
Does a lease end when the landlord dies?
No. Gaudy’s explanation is short: the tenants have a contract, it is a valid legal contract, and the fact that the person they signed it with is deceased does not invalidate it. The tenants can typically live there through the lease term.
That is the baseline. You inherited an asset with an obligation attached, and the obligation runs with the property.
He also pushes back on the assumption that this makes the inheritance riskier. Asked whether a tenant increases the burden on the people inheriting, he says not necessarily, because it depends on the kind of tenant. Real estate in the probate and trust world, he says, is not that different from real estate anywhere else. The same rules apply; you are just seeing the property through a transition.
The three ways this usually goes
You keep the property and become the landlord. He calls it perfectly reasonable to leave a property to someone with a tenant in it and let them take it over as the new landlord. It is also the path people underestimate. Becoming a landlord is a tough business, he says, and if you do not know what you are doing, it is going to be tough.
You sell with the tenants in place. For multi-unit, multi-tenant property in particular, Gaudy notes that a lot of those sell with tenants in them, and he has found it often makes the property more attractive to a buyer, not less.
Somebody has to leave. Sometimes a tenant can be persuaded to move. Sometimes not, and his firm has had to run evictions because the property needed to be sold and the occupant would not go. He mentions the case that shows up more than anyone expects: the tenant is the brother who has been living with mom for free.
The inherited problems nobody wrote down
The complications Gaudy describes are rarely legal ones. They are informal arrangements that never made it onto paper: the sweet old guy who gave a rent break to this guy and a rent break to that guy, and now, he says, you are stuck with that. Occupants with no lease at all who have simply been living there for years.
His posture toward those tenants is worth noting, because it is also practical. His office tries to treat them with as much respect as possible. They had a deal with the person who died. That deal is now ending, they may not have money, and they are worried about where they will go. He describes working with them through the transition, sometimes by finding a buyer who will take the property with the tenant in it.
The alternative costs real money. Hostile occupants make a property hard to show, and Gaudy says his firm sometimes has to pause the estate administration entirely while an eviction or a cash-for-keys arrangement plays out.
Trust or probate decides how fast you can act
Everything above sits on top of one question Gaudy keeps returning to: was the property in a trust, where the transfer is easy, or does the family have to go to probate, which takes a long time?
That matters more with tenants than without. Rent has to be collected. Repairs cannot wait for a hearing date. If a sale is the plan, a buyer needs a seller with clear authority to sign, and in probate that authority arrives slowly. He puts a typical California probate at about a year, sometimes two. Probate vs. trust and what it really costs covers the gap. Probate timelines and eviction procedure are state-specific; Gaudy practices in California, and other states differ substantially on tenant protections.
What this means if you’re planning a 1031 exchange
Once you can legally act, measure the property as it actually is. Below-market rents, deferred maintenance, and a tenant who has been there twelve years all show up in the return. Cash flow and equity calculators will tell you what the asset is really earning against what it is worth today. Many inherited rentals turn out to be low-yield, high-equity assets, the classic profile of a property worth reconsidering. In California the carrying cost may also change, because Prop 19 narrowed the parent-to-child property tax break for rentals.
Then the tax question, which belongs to your CPA: property passing at death generally receives an adjusted cost basis, which can change what a sale costs you compared with what it would have cost your parents. If the property has appreciated further since the death, a 1031 exchange can defer that gain by moving the proceeds into replacement property within the required timelines.
And if the honest answer is that you do not want to be a landlord, that is a legitimate conclusion, not a failure. Some investors in this position exchange into passive replacement property rather than manage tenants themselves; our guide to DSTs explains what those interests are and what you give up in control and liquidity to stop taking maintenance calls.
Watch: Inherited a Rental With Tenants? Here's How to Handle It with Jason Gaudy, Gaudy Law
Educational only. Not legal, tax, or investment advice. Jason Gaudy is licensed in California; rules vary by state. Consult your own advisors.