Dear Quentin,
My husband, 64, and I, 55, have been married for 30 years and have three children: two sons, 27 and 19, and a daughter, 24. We own a small business that does very well.
Our oldest son works full-time for us, our daughter has a very good government job with a pension and our youngest is still in college. All three children went to the same in-state college and we paid for all their college expenses: tuition, housing, meals, etc. Two of the three have college degrees and the youngest is in his sophomore year. None of our children had to take on any college debt.
Our finances:
We own a large primary home at the shore, with no mortgage. The estimated value is $2.5 million. Our second home in Florida has no mortgage and an estimated value of $850,000. We have over $2.5 million in investments between our brokerage accounts, 401(k) and IRAs. We will continue to work at the business and draw an annual salary of $200,000 each for the next decade or so. At this point, I feel our retirement is funded OK.
We also have a rental with a potential monthly rent of $3,300. We bought it for $150,000 with a 15-year mortgage and there is $85,000 left. Its current estimated value is $375,000. Our oldest son asked to move in with his girlfriend two years ago. We kicked out our tenant and put $60,000 into the home for renovation. We charge them $1,450 per month for rent. Both parents contributed to their $100,000 wedding.
Here’s my dilemma:
Our son and new wife “love” the house so much that they want to buy it for $200,000, half the market value, because they feel that is how much we put into the house between buying and renovation. They want to be homeowners, and they want ours for cheap. I do not feel it is fair to give one child a deal, while the others may not get the same chance. I also worry that six months after we sell them this house, they will turn around and sell it.
My husband would give any of them whatever they wanted, so I would be the bad guy if I rejected their offer.
Torn Between Three Kids
Related: ‘Don’t be naïve’: I have a wake-up call for divorcing women — you’ve been giving up too much for too long. Am I wrong?
Dear Torn,
Agree with your husband to present a united front.
Option 1: Say “yes” with caveats.
If you sell the house to your son and his wife for $200,000, you are essentially giving them $175,000, which you should include in your annual tax return. The annual gift-tax exclusion amount is $18,000 per person (or $36,000 if you are married and do so with the agreement of your husband). Otherwise, you must include the gift in your tax return. The lifetime tax-free gift limit is $13.61 million or $27.22 million for a married couple.
But explain that you are, in fact, gifting them the equity in this house and ask them if they intend to live in the house or move. It would not be fair to say “yes” and then make them a prisoner of your generosity by insisting that they would remain in the house (they would likely move regardless of your feelings on the matter). But make clear that this is a gift and, to be fair to your other two children, you would deduct that $175,000 from their inheritance. Boo-ya!
Option 2: Say “no” with no caveats.
By selling this house, you are losing any future equity in this house and the monthly rental income. So make sure you will be comfortable enough and won’t rue the day you sell it. Once it’s done, it’s done. In addition to your other two children wondering why they’re not getting a $200,000 gift now, children who are given property or inheritance often (a) don’t appreciate it and (b) end up wanting more. This I’ve learned from this column.
Ultimately, selling this house to your children for half the market value is a bad financial decision, but allows your son and his wife to get their foot on the property ladder. What will you say to your other children if/when they tell you, “That’s not fair!” and/or ask you for a similar gift? Can you afford to give all three children a $200,000 down payment on a home now? If not, you should think carefully about caving into your son’s request.
My thoughts are currently with the previous tenant.
Related: ‘I’m convinced the U.S. will be drawn into World War III’: How do I prepare my finances?
‘Don’t be naïve’: I have a wake-up call for divorcing women — you’ve been giving up too much for too long. Am I wrong?
‘I am now an empty nester’: I encouraged my two adult sons to move out. I was anxious and scared — now my heart is full
My mother-in-law stole $25,000 from my husband’s emergency fund. We donated to charity rather than give her a birthday gift — and she cried foul.