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Should you let your kids have, buy or inherit the family home?

On Behalf of | Dec 4, 2021 | Estate Planning

It’s hard not to recognize that the real estate market has shifted dramatically, with home prices rising exponentially in certain areas – and many industry experts think the trend will continue. 

Even if you own a modest home, leaving it to your child or children could give them a significant advantage in the future – but you have to handle the process carefully. 

Giving or selling your house to your kids could be risky 

If you give your house to your kids while you’re still alive, the IRS expects you to pay taxes on the gift – and that can be as much as 40% of the value of your home. While there are ways around this, you wouldn’t want to take this step without some sound financial advice. 

Selling your home could also be problematic – even if you sell it for full market value. Under certain circumstances, that could expose you to capital gains taxes. It could also cause the property taxes on the home to rise, which could be problematic for your kids. 

Selling your home to the kids for less than full market value puts you back in the position where you could be paying gift taxes – and your kids could be stuck with the capital gains. 

Leaving your home to the kids is usually the safer option 

Making your home part of your children’s inheritance can allow you to bypass a number of problems – especially if you use a trust. As long as your estate is worth less than the federal estate tax exemption limit, your children inherit tax-free. Moving the house into a revocable living trust prior to your death can make sure that the bulk of your estate stays out of probate.