My daughter recently bought a house in the neighborhood she was raised in, much to my great delight, another generation would grow up with the same neighborhood schools, playgrounds and restaurants my young family enjoyed years ago. Similarly, many clients also have wonderful memories of raising a family and want to help give their children the same experience. These memories can create initial objectives of wanting to leave their longtime primary residence or vacation home to one of their children when they die.
While this objective may be a good decision for some families, experienced estate planning attorneys can often provide cautionary advice about such a specific bequest to a particular child.
When parents wish for multiple children to receive equal amounts of the estate, a practical and efficient way to achieve this goal is to simply state that, without including instructions that particular assets are allocated to any one child or beneficiary, the estate should be divided into shares for their descendants then living “by right of representation” with each then living child and each then deceased child with children surviving taking an equal share of all the estate assets.
How will estate taxes be paid?
Estate taxes and the payment of estate taxes, particularly in the Commonwealth of Massachusetts, are common issues discussed with clients. How to address this issue becomes more difficult when an estate plan directs that a specific illiquid residence be distributed to one child with the other children to receive liquid assets.
For instance, Homer and Marge live in Massachusetts and have three children, Bart, Lisa and Maggie. Bart resides with his parents and he has requested that they leave him the house and leave Lisa and Maggie the remainder of their assets. Assuming the house is currently worth $2,000,000 and the remainder of their assets are about $4,000,000, this request seems reasonable to Homer and Marge who wish to treat their children equally.
But what about estate taxes? Homer and Marge are likely not subject to federal estate tax imposed on estates over $15,000,000 per person in 2026 ($30,000,000 per couple). Massachusetts, however, imposes an estate tax on estates over $2,000,000 at rates up to 16%. If Homer and Marge own all assets jointly and both pass away in 2026, then the survivor’s $6,000,000 estate could owe over $400,000 in Massachusetts estate tax. The only assets available to pay such tax would be the liquid assets intended to be divided between Lisa and Maggie. Although the obligation to pay the tax may be allocated equally between the children, there may be a practical issue of from what resources is the family paying the tax due nine (9) months after the survivor’s death.
Retirement Accounts and Income Tax Considerations
What if a substantial amount of Homer and Marge’s assets are in retirement accounts subject to income tax on withdrawal? Lisa and Maggie, based on current rules and assuming that they are non-disabled adult children of a decedent account holder, would have to withdraw all funds from inherited retirement accounts within ten (10) years of their parent’s death and pay income tax on such withdrawals. It is unlikely that Lisa and Maggie will view this result as their parents “treating all children equally.”
What can be done?
Other factors to consider: whether Bart can pay the expenses of maintaining the house after Homer and Marge are gone; whether Homer and Marge are likely to reside in their house until they die and what happens if they decide to downsize in the future; or whether Bart moves to California immediately after Homer and Marge execute their estate plan and has no desire to move back to Massachusetts.
Some alternative strategies to discuss with clients in similar situations include:
- Giving one child “the right of first refusal” to purchase the home from the estate at fair market value as determined by an independent certified real estate appraiser.
If the child purchases the home, then the siblings would receive about the same amount as they would if the home was sold to a third party. If the child decides within a specific time after the parent’s death not to exercise this right, then the house can be sold and all assets divided equally among the children.
- Avoiding giving specific directives to a fiduciary.
If the children get along and can work together in the future, then there may be no need to specifically direct that one child has priority over the others in receiving the home. In this scenario, any child who wants to purchase the home can agree with the siblings and the estate’s fiduciary on a price which would save the family the cost of preparing the property for sale and a realtor’s commission.
- Making lifetime gifts.
If the parents have substantial assets and high exposure to state and federal estate tax, then they may be motivated to make gifts to their children during life. For instance, if Homer and Marge have $35,000,000 of assets (as of 2026, they can give away up to $30,000,000 during their lives without having to pay a federal gift tax) including several vacation homes, then they may want to set up irrevocable trusts for each child and give each child a house in trust and equalize the value of each house with additions of liquid assets. Irrevocable trusts often create estate tax savings and creditor protection for future generations.
While leaving a home to a child can be a wise decision emotionally and financially, it is critical to discuss all the potential issues with an experienced estate planning attorney. For a customized strategy carefully tailored to meet your family’s needs, contact an attorney in our Private Client Services practice at Wilchins Cosentino & Novins LLP. We welcome the opportunity to assist you and your family.
Marjory Selig is an attorney in the Private Client Services practice at WCN. Marjory focuses her practice on trust and estate planning, asset protection planning and trust and estate administration. Learn more about Marjory here.
This article is not legal advice and should not be taken as such or relied upon as legal advice.