Are Parents Obligated To Pass On Real Estate? Here’s What Experts Say
Adult children might expect to inherit parents’ property. Depending on the circumstances, this can be a financial boon or a massive headache for heirs. What if parents don’t want to follow this plan?
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Every family is different, and the question of whether parents should pass down real estate to their children will depend on complex legal, financial, personal and even cultural factors. GOBankingRates asked experts to weigh in on how to plan for the best possible outcome, whether the kids are getting the house or not.
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Do Parents Have To Pass Down Their Real Estate?
Legally, parents are not obligated to pass down their real estate to their children. They may want to gift it to a charitable organization or to another beneficiary. However, family dynamics and cultural expectations might complicate things — especially if children think they should get the property.
No matter what, parents must make the best choice based on their financial reality and the needs of all parties. Parents should consider, for example, that they might need expensive long-term care as they age. Many homes are not equipped for elders to age in place. Parents should not prioritize holding onto real estate at the expense of comfortably meeting their own needs as they age.
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Is It Wise to Pass Down Real Estate?
Aside from the sentimental value of a childhood home, passing on well-maintained property in a desirable location can offer long-term financial benefits for children.
According to Brendan Halleron, partner and financial planner at Affiance Financial, one important advantage is a “step-up of the cost basis (i.e., what you paid for the property) at death, meaning the tax implications of selling are minimized compared to if you were to sell the property while living.”
Having more than one heir can make things complicated, however, especially if their respective financial situations are quite different. Additionally, Halleron said, if heirs don’t intend to keep the property, disadvantages can arise, such as “the financial burden of buying out other beneficiaries if only one beneficiary wishes to keep the property” or “the breakdown of ownership of the property if there are multiple beneficiaries and the property is intended to be kept.”
When Parents Don’t Want To Leave Real Estate to Children
Parents can designate other family members, friends or even charitable organizations as beneficiaries. If parents don’t want to pass on their property, it’s important to decide on their ultimate goals for the property and their children’s inheritance.
Setting up a trust might provide more control over how and when the property is transferred, potentially reducing the tax burden on beneficiaries. It’s essential to work with an estate attorney and finance professionals who specialize in estate planning. This will avoid legal disputes and provide clarity for everyone.
Halleron said the biggest mistakes he has seen in this area involve a lack of advance planning when parents are still in good physical and cognitive health. Working with a professional can help ensure that “the proper titling/estate documentation is in place to prevent disagreements or issues between heirs.”
Thoughtful planning enables families to weigh the costs and benefits of keeping or selling the property, as well as evaluate timelines and inheritance structures that will best serve their needs and minimize their tax liabilities.
Communication Is Key
Every family is different, and the decision to pass down real estate depends on the personalities and dynamics involved. In some families, the children might have no interest in inheriting the property, while in others, there might be multiple children with competing interests.
Halleron has seen a lack of planning lead to unintended consequences. In one case, a special family property was left to one of three siblings so it could stay in the family. But, he said, the parents “did not adjust their beneficiary designation percentages on their other assets. When they passed, the son unintentionally ended up with a much larger inheritance than his siblings, given the appreciation of the property. This can easily be avoided through advance planning.”
Open communication and family meetings can help parents gauge beneficiaries’ interests and expectations. It’s important to approach these discussions with empathy and a willingness to find mutually acceptable solutions, and then work with professionals to make sure intentions are well documented.
Do What You Want and Be Clear About It
In the end, parents should make the best choices for themselves and their families — ones that align with their own goals and honor their wishes. Resist the urge to do the default or most culturally acceptable thing. Keep lines of communication open.
Passing on property might not be the wisest choice, and there are plenty of other options. Work on end-of-life planning with an expert estate planner, attorney and even a family therapist to save everyone a lot of suffering.
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This article originally appeared on GOBankingRates.com: Are Parents Obligated To Pass On Real Estate? Here’s What Experts Say