How Baby Boomers Can Utilize Generational Wealth To Help Millennial and Gen Z Kids Purchase Their First Homes
Baby boomers hold half of the nation’s $140 trillion in family wealth, according to The New York Times. Much of this money is expected to be passed down to the heirs in what has been dubbed the Great Wealth Transfer.
It’s key that parents are well prepared for handing down assets, including cash savings, to their children and other heirs. This means not only having a detailed conversation with your kids about what they can expect and how to manage their inherited affairs, but also, possibly, putting your wealth to use now by helping your millennial and Gen Z children purchase their first homes.
Here’s some ways that could work:
Give Them a Loan
If you trust that your children are responsible enough to respect the terms of a loan — and to pay it back — you may want to consider lending them the money to make a down payment on a home. You can work out what’s called an intrafamily loan. As an Experian blog explained, an intrafamily loan allows a borrower to finance a home with money lent to them by a relative. It can save the borrower money while also serving as an estate-planning tool for the lender. If set up in accordance with IRS regulations, this type of loan can help the lender avoid estate taxes, too.
This type of loan requires a written contract and should not be done without the guidance of a lawyer and/or estate planner.
Go in as a Co-Signer
Perhaps your millennial or Gen Z kids don’t have the money to make a down payment or haven’t established a healthy credit history. You can swoop in and save the day by serving as a co-signer on a mortgage loan. Do bear in mind that your kid needs to be financially responsible and able to meet their obligations as a co-signer. If they’re going to default on payments, you’ll be on the hook to cover them, and that could put your wealth at risk.
Gift Them Money
A loan is just one (ultra financially responsible) way to give your adult kids a path to purchasing their first home. You can also just give them the money to go about the process, no fine print attached. If you do this, consider the annual gift tax exclusion, which allows you to give up to $17,000 to anybody without having to pay taxes on it. The money must be used within the year you give it, though.
Selling or Giving Your House to Your Children
Another way to help your kid embark on the journey of homeownership is to outright give (or sell) them your home. This is particularly attractive for boomers who are looking to downsize or relocate to a state that is better for retirement. This is called a “non-arm’s length transaction,” and to do it right, you should hire a real estate attorney and a title company to ensure that nothing goes awry — and that your act of generosity can be enjoyed without future penalty.
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