Generational Wealth: 7 Reasons to NOT Leave the Family Home to Your Children

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

The home represents a large portion of the estate of many Americans. Thus, you may intend to leave your family home to your children, as it is an asset that should retain its value over time. After all, it’s part of your financial legacy, and you may feel as if you are doing the right thing by leaving the property to your children.

Yet experts in estate planning point to many reasons this may not be the best idea, both for yourself right now and for your children after you’re gone.

There are several ways you can transfer your home to your children:

• A trust;
• A gift;
• An inheritance;
• Transfer-on-death deed;
• A sale.

However, each of these has major drawbacks, from tax ramifications to the risk of losing the family home if your children experience financial difficulties.

Here are seven reasons you may want to reconsider leaving your home to your children.

Your Home Could Be Held Up in Probate

If you leave your home to a child or children in your will, the proceedings could be subject to probate. The probate process can take up to 18 months to complete, according to the website wny-lawyers.com, home of Friedman & Ranzenhofer, PC.

Your Children Might Be Subject to Capital Gains Taxes

If you leave the home to your children and they sell it, they may have to pay a capital gains tax if the home has appreciated since the owner’s death, according to FoxRoach.com.

If you gift your child the home before you die and they sell it at a future date, they will pay capital gains tax based on the market value when they received the home and the sale price when they sold.

Your Children Could Owe Estate Taxes

One alternative is to place the home in a living trust, where it will be transferred to your children upon your death. However, living trusts will not shield your home from estate taxes. Additionally, if you are trying to pay down your assets to qualify for Medicaid, a living trust won’t help, according to go.hfcu.org, the Hanscom Federal Credit Union blog.

You or Your Children Could Lose the Home

If you gift the home to offspring, add them to the deed while you are living or even sell the home to them, there’s a risk of losing your asset. If any child on the deed gets into financial difficulties and can’t pay the mortgage, the home could face foreclosure. Other issues, such as divorce, can also put the house at risk.

Your Children May Not Want the Home

In addition to the financial and legal ramifications involved in passing your home onto your children, there are also some practical reasons not to do it.

Your children may not want the home. If so, after your death they will be saddled with the additional burden of sorting through your belongings to sell, donate or throw away, and also selling the home. If it’s the childhood home they grew up in, this can be fraught with mixed emotions, too.

Your Children May Not Be Able to Afford the Home

If your children decide to sell the house, they will be responsible for mortgage and property taxes while the house is on the market. If you plan to bequeath your home to your children, you should ensure you are also leaving them enough cash to cover the mortgage payments. Otherwise, they could lose the home to foreclosure.

Your heirs will also have to maintain the home and pay for upkeep and repairs. Being saddled with these additional costs could cause them to sell the home at a lower price, just to remove the responsibilities of homeownership.

It Can Cause Family Arguments

If one child wants to keep the home and their siblings do not, this can also create conflict. Can the sibling who wants to keep the home afford to buy out the siblings’ share? Will the other siblings agree to a reasonable payment plan?

Before you leave your home to your children, collectively, or even one child in particular, make sure the whole family agrees on the terms. The terms should be spelled out clearly in your will. Otherwise, leaving your home to your children could create unintended stress on the family.   

Final Note

Of course, in some instances, bequeathing your home to your children after you die could be the best move. As long as everyone is in agreement on the terms, leaving your home to a child can help preserve generational wealth while giving young adults a head start with a house of their own.

If you decide you want your child or children to take over your home after you die, a trust might be the best way, according to ISVGlaw.com, the website for Melville, NY-based legal firm Schneider, Garrastegui & Fedele. A trust can help your children avoid capital gains taxes on the property, help avoid the hassles of probate, and keep the home under your control until you die.

Share This Article: