Leaving your house to your children may seem like a generous gesture, but it can lead to unexpected complications and family disputes. A survey found that nearly half of American adults don’t have a will,1 which can further complicate matters.
Before you decide to bequeath your home to your kids, consider these 13 reasons why it might not be the best idea. From tax implications to potential family conflicts, these pitfalls may just burden your children.
1. Probate Delays
If you leave your house to your children in your will, it could get tangled up in the probate process. Probate can hold up the transfer of the home for months or even years.
During this time, your children will need to take on the responsibilities of paying the mortgage, maintaining the home, and covering bills. If the house is vacant, they’ll also need to protect it from vandalism, squatters, or theft.
2. Capital Gains Taxes
When your children inherit your house and decide to sell it, they may have to pay capital gains taxes if the home has appreciated since your death.
If you gift the house to them while you’re still alive, they’ll owe taxes based on the market value when they receive it and the sale price.
These taxes can be substantial, and your children will need to find a way to pay them. In some cases, they may need to sell the house at a lower price to cover the tax burden.
3. Estate Taxes
Placing your home in a living trust and instructing it to be transferred to your children upon your death doesn’t shield it from estate taxes. In most states, a living trust is still considered a countable asset for Medicaid purposes.
Consult with an estate planning attorney to understand how this might impact your estate and Medicaid accountability. Proper planning can help minimize the tax burden on your children.
4. Risk of Losing the House
Gifting your home to your children, adding them to the deed while you’re living, or selling the house to them exposes the property to risk.
If any person on the deed experiences financial difficulties and can’t make mortgage payments, the home may face foreclosure.
Additionally, if your child goes through a divorce, the house will be considered a marital asset. Years of paying the mortgage and caring for the home could evaporate due to unforeseen circumstances.
5. Disagreements Among Siblings
When multiple children inherit a house, disagreements can arise. For example, if a brother with a lot of debt shares ownership with his sister, he may want to sell the property while she doesn’t.
If they both inherit an undivided interest in the estate per your will, they’ll need to come to an amicable agreement on what to do with the property. If they can’t, the matter may end up in court.
6. Affordability Concerns
Not every child enjoys financial success. If they can’t afford the mortgage, property taxes, utility bills, and inevitable costs of home ownership like replacing a roof, inheriting a house may become a huge burden.
If they’re “forced” into possession via inheritance, they may have to sell the property at a lower cost to get out from under the bills. This can lead to resentment and family conflicts.
7. Lack of Interest in the House
Parents who feel generous may assume their children want their home when they might not. They may see it as another piece of unfinished business to manage when their own lives are busy with children and careers.
Even if they have fond memories of growing up in the home, selling it can be emotionally challenging. It’s essential to have an open discussion with your children about their desires and expectations regarding the property.
8. Potential for Family Fights
Families experiencing grief are vulnerable to spats that can escalate into legal disputes. If one child is living in the house and wants to keep it, they may struggle to buy out the other siblings’ shares of ownership.
To avoid conflicts, discuss your wishes for the house with your children and consult an estate planning attorney. They can help you create a plan that’s part of your will or another type of agreement.
9. Mortgage Transfer Issues
If you still have a mortgage on your home when you consider giving it to your child, it can create obstacles. If the mortgage is transferable, your child will become responsible for it, which could be a financial burden.
If the mortgage isn’t transferable, your child might need to refinance the debt, which can be expensive or impossible if they don’t have a strong credit history.
10. Complications of Living in the House
If you want to give your house to your child but continue living in it, consult an estate planning attorney about your options, such as putting your home in a trust.
While this can help with estate taxes, there are potential downsides to becoming your child’s tenant.
Disagreements over home maintenance or responsibilities can lead to family rifts. Even if you have an ideal relationship with your child, you could find yourself at the mercy of a less agreeable son- or daughter-in-law in the future.
11. Unforeseen Financial Needs
Your home equity could be one of the largest assets you possess. If you give up your house, you won’t be able to sell it or take out a reverse mortgage to access cash if you need it later in life.
Even if you’re financially comfortable now, a large medical or nursing home bill could leave you scrambling for money to pay it. It’s crucial to consider your potential future needs before giving away your home.
12. Imprecise Language in Estate Documents
Not only do you need to put everything on paper, but you also must be as specific and precise as possible. The difference between “Transfer on Death” and “Joint Tenant With Right of Survivorship” can have significant implications.
With “Transfer on Death,” your home is immediately transferred to the named person on the deed upon your passing, if available in your state.
With “Joint Tenant With Right of Survivorship,” you co-own the home, and ownership passes to your co-owner if you die first, but you don’t have complete control while alive.
13. Failure to Create a Living Trust
Unlike a will, a living trust helps you manage your assets while you’re alive and allows more detailed control over what happens to your possessions when you die. A living trust enables your house to pass to your designated beneficiary without going through probate.
This means fewer delays and expenses, and your home can be transferred to your children more quickly and efficiently. Consult an estate attorney or financial professional to ensure your plans are legitimate and won’t cause issues down the road.
Leaving your house to your children when you die may seem like a loving gesture, but it can lead to a host of complications, from tax implications to family disputes.
Before making this decision, it’s crucial to consider the potential pitfalls and consult with an estate planning attorney to explore alternative solutions.
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Davin is a jack-of-all-trades but has professional training and experience in various home and garden subjects. He leans on other experts when needed and edits and fact-checks all articles.