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Sell Or Leave As Inheritance?

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I recently heard from two homeowners. One said, “I’m keeping this house for my children – but I don’t know if that’s the wisest decision.”  The other asked, “Do we leave the house to our children or would it be better to sell it now? We are thinking of simplifying our lives, and maybe do some traveling.  What are the arguments either way?”

— Two long-time Pacific Palisades homeowners

There are at least 4 aspects to carefully consider before making this very important decision:  personal and emotional, practical, financial, and tax issues.

Personal and Emotional Issues

Does the comfort in your established “nest” outweigh the potential advantages of adjustment to a new location?  For some, a change may be invigorating and exciting.  Others may experience an overwhelming sense of disruption in their lives. Would any of your children want to eventually live in the home?  Could that be arranged for in a manner that would not result in resentment or other ill feelings amongst various family members?  If the house is left as part of your estate, is it likely that some of the family might have disagreements over it?  Have you discussed these issues with family members?

Though the decision is clearly yours to make, you may feel more comfortable knowing how the other family members feel.  If you have a desire to travel, perhaps a condominium or home in an adult retirement community would be more practical.  Then, you could more easily just pick up and go at will.

Practical Issues

Is your home becoming burdensome to keep up?  Are multi-levels becoming a problem for someone starting to have difficulties with stairs?  Would a smaller home with a low-maintenance outdoor area be easier for you?

Financial Issues

If your financial security is independent of the equity in your home, the decision to retain or to sell your home would not depend on financial issues. If there is little or no need for investing the net proceeds of a home sale for other uses, then you obviously can make freer choices about selling or not selling.  However, it is wise to have a really clear idea about the present value of your home before making a decision if financial issues are important now or likely to become so soon.

Tax Issues

These may be of little importance in your decision at this point, or they may be crucial in evaluating your options.  Please check with your tax accountant or other professional tax expert or financial planner about these aspects!  Each option you consider may have numerous tax consequences at different points in time and for various family members.

There are state, local and federal tax issues, and the issues may not be obvious without very thorough consideration of all the alternatives.  For example, current capital gains rates are very low as compared to recent decades.  Also, the federal exemption of $250,000 or $500,000 of profits from the sale of one’s home can make a big difference.  Additionally, if you meet the criteria of Proposition 13, you may be able to carry forward your relatively low property taxes to a new home if it is located in one of the many counties that cooperate with this program.

I can share a solution to this question that we worked out for a family last year.  The one parent still living in the home had decided to move into a retirement facility, but the family did not want the property sold due to various tax considerations.  After a series of conversations, they decided to have me lease the home for a 1-2 year period, with the plan of selling it after settling estate matters.  In the meanwhile, the rental income covered taxes, insurance and maintenance, as well as offsetting most of the owner’s own housing costs.

If You Need Assistance With Your Situation

Please let me know if I can be of further help regarding any of these issues, or any other questions that may arise.  I can provide an estimate of the approximate value of your home whenever that may be useful to you.  There is never any cost to you or obligation for courtesy evaluations.  I can also be of service in considering housing alternatives, including putting you in touch with highly qualified agents who can provide information about homes in different areas.

It would be my pleasure to help facilitate your “flying first class” if that is your desire – or to simply retain maximum equity from your property for the family’s future enjoyment!

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