Please ensure Javascript is enabled for purposes of website accessibility There’s more to wealth transfer than money - Janus Henderson Investors
For Individual Investors in the US

There’s more to wealth transfer than money

A recent article reminded Wealth Strategist Ben Rizzuto of his childhood home and the intentions parents may have for bequeathing their homes to heirs. Here, he discusses the importance of family members having candid conversations about wealth transfer.

Ben Rizzuto, CFP®, CRPS®

Ben Rizzuto, CFP®, CRPS®

Wealth Strategist

Oct 2, 2023
4 minute read

Key takeaways:

  • A recent study revealed that more than three-quarters of parents plan to leave a home to their children when they die.
  • While the financial implications of bequeathing real estate are fairly straightforward, the non-financial issues can complicate matters.
  • A family money meeting – ideally moderated by a financial professional who can offer objective advice – can be a valuable forum for discussing parents’ wealth transfer intentions.

A recent Wall Street Journal article discussed the “math” associated with inheriting a home from one’s parents.1 While the article focused on the many financial issues that are important to consider with these types of inheritances, it also brings to mind the non-financial issues that can complicate matters.

According to a 2023 Charles Schwab survey, more than three-quarters of parents plan to leave a home to their children when they die.2 Additionally, a 2021 paper from the Center for Retirement Research at Boston College, “Intended Bequests and Housing Equity in Older Age,” revealed that “retirees have every intention of letting family members inherit their homes.” More specifically, the paper noted that, for those who have a desire to leave at least $10,000 as an inheritance, the house is in many cases part of it.3

The “Easy” Part: Financial Issues

With home values around the country on the rise again, many children who inherit their parents’ home may quickly sell the property to take advantage of this environment and help fund long-term financial goals. This desire to sell is heightened by the fact that the cost of upkeep or the cost to update a parent’s home may not be worth it. With that said, it is important to consider the possible tax ramifications of this transaction, as well as provide a refresher on the tax treatment of gifts versus inheritances.

In general, inheriting real estate makes better sense from a tax standpoint as inheritors will receive a step-up in cost basis, whereas if a house or other real estate is given as a gift while the parents are still living, the inheritors would receive it at its original purchase price.

For example, if I inherited my parents’ house in Swink, Colorado, my cost basis would be $125,000, which is the current value of the property. But if they gave it to me as a lifetime gift rather than an inheritance, my cost basis would be $25,000 – the price they paid back in the 1970’s. If I subsequently sold the house for $125,000, I could be looking at capital gains taxes on $0 (in the case of an inheritance) or $100,000 (in the case of a gift).

The not-so-easy part: Non-financial issues

The financial issues in these scenarios are fairly black and white. Non-financial issues, on the other hand, are where things can get murky.

While the WSJ article noted that vacation and summer homes are more likely to kept by heirs, this decision may hinge on location. My parents’ home in Swink was a wonderful place to grow up, but it is decidedly not a vacation destination. However, even though I may not want a house in Swink, my parents do have to live somewhere.

This brings up questions regarding care as they age. If they choose to stay in their home, we’ll need to figure out who will be available to provide care for them should they need it. If they choose to move into a retirement home, we’d need to figure out what to do with the house. But even before they do that, we would need to tackle the sentimental issues of selling the house, moving out of an area that they love and are comfortable in, as well as all the other emotional baggage that accumulates after spending over 50 years in a place. Think about how many clients or parents have said, “this is the house I’ll die in.”

As you can see, that little house in Swink raises a lot of questions that need to be addressed. The answers to those questions affect my parents, my family, my sister’s family – all of us. And the situation highlights how important family money meetings – ideally moderated by a financial professional who can offer objective insight – can be as a forum to discuss these issues.

So, if you haven’t already, I’d encourage you to talk with your parents or your clients to see what their intentions are for their current home(s). It is a conversation worth starting sooner rather than later so that all the considerations – money-related and otherwise – can be given the attention and thoughtfulness they deserve.

Looking for ways to empower families to discuss property transfer, wills, trusts, and other important planning topics? Check out our Wealth Transfer resources.

1 “The New Math on Inheriting Your Parents’ House.” Wall Street Journal, May 31, 2023.

2 Ibid.

3 Engelhardt, G. and Eriksen, M. “Intended Bequests and Housing Equity in Older Age.” Center for Retirement Research at Boston College, January 2021.