Leaving it to the Kids

If there’s one dominant theme I deal with more than any other is the planning or result of parents leaving their largest nest egg to their children. Today we’ll discuss the realities of this practice with my over 22 years of originating mortgages to the people of Hawaii.

Have you given much thought as to what your plans are for your home after you are no longer around? Many may have a vague idea. Many have invested time and money drafting wills and trusts that provide for the property to go to their kids upon their death. I cannot tell you the number of times I have heard “This is our family home. We want it kept in the family for our kids, and their kids to enjoy”. While this might be the most sincere and kind gesture parents could make, the reality in almost all cases is far from what they envisioned.

The reality is if you have more than one child, the likelihood of that property “remaining in the family” for years after your passing is very unrealistic. At your passing your kids are no longer the 10 year olds you remember playing together. They most likely have spouses and children of their own. It’s unrealistic to think your children will all cohabitate together with their families. In so many situations with multiple siblings, one sibling has an interest to reside in the property, or already is doing so. Unless that child has the means to pay out the equity interest of their brothers or sisters, that one child is enjoying a benefit at the expense of the others.

Even if no child wishes to live in the family home, and the home is placed into the rental market, this may not guaranty the home being kept in the family either. Everyone has different interests and needs at different times in their lives. While a majority of the siblings may agree with renting the family home, there’s always one that would rather have the cash now.

The worst of the scenarios is with long-term care for elderly parents. The cost of this kind of care is so high, I’ve seen equity vanish into thin air so quickly.

I bring these examples up because I see so many parents working their entire lives for something that is never going to materialize. So many of these homes are eventually sold and the funds distributed to the children. I only see a small portion of these homes truly staying “in the family”. With this in mind, looking back, maybe some of the decisions made about financing would have been done differently? Maybe taking that 15-Year Fixed mortgage to pay the home off early was not the right course of action? Maybe a Reverse Mortgage in hindsight would have made more sense?

Homes and mortgages are serious long-range matters. No one has a crystal ball, and no one can predict the future. I strongly suggest long before the parents are heading to retirement, hold a family meeting and discuss the realities of the plan in regards to the family home. If the decision is to “leave it to the kids” consult a competent estate attorney to draft up the appropriate legal documents. The last thing any parent would wish to have happen after being so generous to their kids is to have the children come to me after your passing to see if there’s enough equity and income from one sibling to buy the others out. Or in the saddest case, me helping a new family finance the purchase of your home because your kids couldn’t agree on what to do.