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Your house, with its beautiful gardens, rows of bookcases and lovely keepsakes, is a treasure to you. It’s probably also your largest financial asset. You’d like to give it to your children when you pass on.
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Many times, it’s not just a home’s emotional value that makes people decide to leave the house to their heirs. It’s a desire to leave a financial legacy, too.
But is this a wise strategy? Oftentimes, yes, as long as everyone gets along, the house isn’t stuffed with 50 years’ worth of National Geographic and you don’t mind if the kids sell it immediately after the funeral. We talked to several certified financial planners (CFPs) with experience in estate planning and found five questions you should answer before you make the decision to leave the old place to the next generation.
1. Is the house worth something?
As hard as it may be to believe in the current red-hot market, some houses are worth less than the owner paid for them. During the Great Recession, home prices fell 27.4 percent, and homes languished on the market for months. If you recently moved to a more expensive home with a big mortgage, your heirs may owe more than the house is worth if the housing market declines, and may have to pay utilities, mortgages and taxes as they wait for the house to sell.
The heirs don’t have to take the house, even if you will it to them. The mortgage debt is between the bank and the signers. If the house is worth less than the loan, the bank will foreclose and sell the house to recoup what it can. If the heirs want the house, they will either have to take on the mortgage payments or pay off the balance — something that probably won’t bring the happiness you envision. If you don’t want to leave the house, it’s probably a good idea to prepare them for what their options are when you die.
Try to be considerate. “If they do decide to remain in their current home, they could take steps to put their home in order, before they pass,” says Gage Paul, a CFP in Hudson, Ohio. “They can begin decluttering their home, sorting family heirlooms and disposing of any junk. … This process could also prompt a discussion with the family about their intentions with the home and any instructions they would like honored.”
2. Do the kids want the house?
In places where home prices are soaring, your children might very much appreciate inheriting your home. “Here in metro Boston, young families are being forced to look for affordable housing further away from the city — so if they can access housing via inheritance or affordable sales price, it is greatly appreciated,” says CFP Catherine Valega. “In my town, Winchester, Massachusetts, many children inherit their parents’ homes, or buy them from them at prices they could not afford on the open market, which is also a great strategy.”
On the other hand, if your children are comfortably ensconced elsewhere, they may not want to move back home. Or they simply might need money more than they need your house. For many heirs, dealing with the clearing and sale of a house is a burden, especially if they live far away, says Rob Greenman, a CFP in Portland, Oregon. “There could be a preference of receiving liquid investments as opposed to physical assets that don’t offer any income or liquidity properties,” he says.