Home is Where the Heart is
Passing down your family home to your children can keep the memories throughout generations alive. If the children can afford to purchase the home, it can be a great opportunity for the parents to take the proceeds of the sale and put them towards downsizing. If you are thinking of buying your parent's house, or you're in the position to gift your house to your child, here are a few tips on how to make it a smooth transaction...
→ Have the Talk
It's important to discuss the needs and expectations the next generation may have of your home, and decide whether to leave the upgrading to your child, or to take care of it yourself. If you are going to leave it to the receiver it is important to notify them of things that may be in need of attention to avoid disputes. Having a home inspection done can give everyone a better idea of the property's condition and where proper discounts can be made.
→ Gifting a Home
If you are planning on giving your home to your child, it's a good idea to do it through a revocable living trust, which will give you the option of changing your mind in the future. Keep in mind that the property is tied to it's deed owner as well as their credit, so if the the recipient runs into financial trouble or bankruptcy you could be looking at foreclosure on the home.
Note: Contact me about your current mortgage to make sure transferring ownership of the property as a gift is possible without forcing you to immediately pay your mortgage in full.
→ Leaving it all behind
Another alternative for transferring title to the next generation is to wait until death. This could help your children avoid tax implications. Make sure the person taking over the house is interested and capable of taking over property taxes, insurance and maintenance costs.
If only one child wants the house and others want to inherit money, talk to me, your mortgage broker, about making equitable financial arrangements to compensate. If no one wants the property, create a trust that breaks down the asset to distribute the proceeds of the sale to each child accordingly.
→ Taxation Tips
Parents must sell to their kids at market value. If the property is being sold for less than what comparable homes in the market are going for it will be considered a bargain and therefore a gift, which will generate tax implications. It is acceptable for parents to loan money to their kids, but legally they must charge interest and declare it as income.
This is a complicated process, consult your accountant and your lawyer for more details. If you are looking for a referral for one of these services let me know, I have worked alongside some of the best and would be more than happy to set you up!