Real Estate Planning

Anyone who has been in the market for a new home over the past few years has discovered something many economists once considered highly improbable – a sudden and sustained lift in mortgage interest rates coupled with resiliency in housing prices. The combination of higher rates and higher housing prices has pushed the dream of homeownership out of the minds of many would-be buyers.

In response to this, we have seen many of our clients help their children buy a home. This can take the form of down payment assistance or full purchase, either as a gift or a loan that can be forgiven later, if so desired.

When financial planners are asked to consult on such a major financial decision, the focus may be less on the impact of large withdrawals from assets, and more on how these gifts impact a client’s legacy planning and personal liability.

I often begin the discussion with the following questions with regards to home purchase assistance:

1. How does this outlay to one child impact the future inheritance of your other children, and how do you plan to mitigate the impact?
2. What will your ownership status be?
3. If you will be an owner of the home, what additional liability coverage should you consider?

Let’s delve into the implications that each of the three questions raise. 

Future Inheritance:

Let’s say you gifted your son $500,000 to purchase a condo. At your death, your son is still living in the condo. Do you wish to reduce your son’s inheritance to reflect the $500,000 gift and if so, do your estate documents express your wishes? If not, your remaining assets could be split evenly between all your children, creating potential tension between them. Will you be making repairs and improvements in the future? If so, keep good records of additional outlays that benefit one child and not the others.

In short, it is best not to assume that your children will “figure out” how to offset the inheritance for the one sibling who received a special gift. In fact, depending on your estate plan, there may not be much flexibility at all after your death.

Ownership Status:

How the home is titled is impactful as well. If a revocable trust is the owner, the trust would own the property at your death and its disposition would be detailed in the trust language. If all your children are equal beneficiaries of your trust assets, that would mean the non-resident children would have ownership of the home one sibling has been living in.

Don’t assume your children will remedy this situation amicably. You should consider an amendment to your trust to express your wishes for how the property is to be handled when you’re gone. If the house is owned personally, your last will and testament may need to be amended to account for the home.

If you are a joint owner on the property, your child will inherit the property at your death outside of probate and trust disposition. However, you need to be aware of state inheritance laws to ensure there is not an inheritance tax owed, which could mean that your child will need cash to pay the taxes on your share of the home. Your trust and will should be updated to reflect this bequest.

Lastly, an overlooked complication can arise from owning real estate in a different state than you reside in. If the out of state property is titled personally, your heirs may need to go through probate in their home state. A trust or an LLC are better ways to title out of state real estate, as they avoid ancillary probate.

Liability Coverage:

Home ownership carries liability risk. Guests can fall down the stairs and sewers can back up. Owning a home another person lives in complicates matters, as you won’t know who is being invited to the house or what activities take place. Obtaining additional umbrella coverage can be an affordable way to cover additional liability. Titling your ownership stake in an LLC can also provide some creditor protection.

If you are the sole or joint owner, are you prepared to ensure real estate taxes are paid, HOA rules are followed, etc.? The child who is living in the home may be responsible for maintaining the property, but you are ultimately the owner.

Final Thoughts:

As with any major life event, communication is so important. Having a family meeting to discuss the home purchase and how it may impact the division of your assets can help avoid future acrimony amongst your heirs.

In addition to working with an estate attorney to update trusts and wills, your accountant should be part of the discussion as well. Any gift larger than the annual exclusion - $19,000 in 2025 – has gift tax implications.

It should be noted that the decision to help a child purchase a home has a strong emotional component to it, and it is highly gratifying to see your family members enjoy their inheritance now when they need it most. My hope is that these questions help you ensure this gratifying experience isn’t negated by family squabbles after you are gone.

Meet Matt Cohen, CFP^®, CIMA^® »

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