As we all know, house prices are skyrocketing in the region, and this in turn has resulted in parents providing assistance to children who are entering the housing market. This assistance can take several forms, but the most common are providing a guarantee for a mortgage; becoming a part-owner of the house; and providing money to increase (or sometimes just to create) a down payment for the purchase.
All three options have estate planning ramifications that you should consider when contemplating assisting your children in this way:
A guarantee obligation survives your death, and becomes an obligation of your estate. Upon your death, the obligation acts as a barrier to the proper administration of your estate. The lender can chase after beneficiaries of your estate to claim monies on a mortgage which has fallen into default, and the outstanding obligation can even prevent assets from being transferred out of the estate. How can you deal with this risk? One way is to insure the risk – having the child pay premiums on mortgage or life insurance tied to your life that would be used to pay out the mortgage should you die. An alternative would be to require that the child’s share of your estate be used to retire or pay down the mortgage such that your estate would be relieved from any liability.
If you are on title to the property, your ownership interest in the property becomes an asset of your estate to be dealt with upon your death. This means that you have to consider both how you deal with that ownership interest upon your death, in the context of your will and estate plan, and also how, practically, your estate would actually carry out the transfer of your interest upon death – would probate be required, for example?
Finally, if you have given money to a child for a purchase, there are clear implications as to how you reflect this gift in the context of your presumed desire to treat all your children equally. The gift of money to a child will not be equalized on death unless you have specifically provided for that equalization on your death in your will. When contemplating that equalization, you will want to consider a number of issues – for example, whether the fact that the one child has had use of the money you have given them, while the other child(ren) have waited until your death for a benefit, should affect the amount to be equalized. I have prepared some wills where the equalization payment to the other children has had an interest factor added to the basic amount equalized, in order to ‘reward’ the patient child(ren) who have not needed money during the lives of the parents. Another option is to give the same money, at the same time, for the other children. This latter option may not be practical if it results in the parents being unable to provide for themselves, leaving them having to rely on their children for support down the road.
What is the lesson from all this? If you are going to help one or more of your children buy a house, make sure you consult with your estate planning lawyer on the legal ramifications of that help, and how you can structure your affairs to minimalize the impact of that ‘help’ on the balance of your estate plan.