“My son has no financial investment in the property.” (The subject of the photo is the model.) – Getty Images/iStockphoto
Instead of giving my son a portion of some rental property that my daughter and I own 50/50, I promised him $250,000 as an inheritance before I died. The reason is simple: my son has no financial investment in the property;
I am now saving this money for him. When the amount accrues to $250,000 (including interest), should I give him the money, or should he have $250,000, plus the interest paid? Obviously, I prefer the former scenario.
I try desperately to do the right thing for everyone. How to Make Up Home Equity?
Mother
Related: My father gave me $250,000 to buy a house but told me not to tell my two siblings. Am I morally obligated to tell them?
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You are a generous parent, not a Federal Reserve board member or a Nobel Prize-winning economist; and certainly not a fortune teller. – MarketWatch Illustration
It may never be completely equal. Whatever you decide, write it down.
Your daughter invested in a house and, as you said, she brought in some of her own money. Given the long-term trajectory of the real estate market, the value of the home will increase. Your son has the opportunity to invest the $250,000 in the stock market or perhaps use it as seed capital to purchase his own property.
If you want to ensure that each child receives the exact same inheritance, down to the last penny, you could give him a monetary equivalent of your share of the rental property and allow your daughter to own the home outright. If you can afford to give your son the equivalent in cash, it would be a strange approach to force your daughter to become a joint landlord with her brother against her will and/or without her knowledge.
The clue is in your question: if the agreement is “I will give you $250,000…” then you really should give him $250,000 with no additional interest. Interest is just one way you can accumulate the amount of money you commit. You are not operating as a bank and he is not entitled to any interest unless you promise him interest. Ultimately, you want to ensure that each of them receives a similar gift and/or legacy.
Imagine that you made this real estate deal in 2009 and gifted your son $250,000. He’d be acting like a bandit, given the drop in real estate prices, which took a decade to recover. You are a generous parent, not a Federal Reserve board member or a Nobel Prize-winning economist, and certainly not a fortune teller. Sometimes, a non-cash inheritance leaves a lot to chance.
To equalize the inheritance later, you simply adjust the distributions in your will or trust to reduce your son’s and daughter’s shares to the amounts you each gifted. A “hot clause” in a will ensures fairness by effectively deducting pre-gifts from the inheritance share, retroactively calculating the amount each heir has already received and helping to ensure that everyone receives an equal amount.
“It is also based on the principle of satisfaction – the assumption that parents do not want to benefit one child twice at the expense of other children,” the Association of Will Writers said. “The ‘hot spot clause’ does not require that the gift be returned to the testator’s estate. It simply acknowledges its existence in order to reduce the beneficiary’s share of the estate, with the end result that all children receive the same benefit overall.”
My only concern is whether you have enough money set aside for retirement, which should include an emergency fund for at least six months of expenses. (Some financial experts also recommend keeping a “just in case” fund for up to five years in retirement to have adequate reserves in the event of an economic downturn and stock market crash.
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Given that you have to save up to give your son $250,000, this is a red flag to me. Never sacrifice your financial security for a promised gift or inheritance during your lifetime. Discuss your current assets, including your primary home, and your future retirement needs with your estate planning attorney and accountant. This may include long-term care or other unforeseen medical or housing-related expenses.
According to the IRS, the lifetime estate and gift tax exemption for 2025 is $13.99 million ($27.98 million for married couples). You can also donate up to $19,000 per year per child ($38,000 per year for a married couple) without including the cash gift in his annual income tax return filed with the IRS.
Gift taxes apply to wealth transfers during your lifetime and are paid by the donor; estate taxes are levied on the estate of a deceased person. Earlier this year, Congress enacted the One Beauty Act, which increased the base gift exclusion amount. Starting in 2026, the lifetime exemption will be $15 million per person and $30 million for married couples.
It’s best to overshare with the IRS. “Gift returns are information returns because there is a large amount of information and no tax is sent to the IRS,” says Irvine, Calif.-based LSL CPA. “Because the IRS requires enough information to ‘fully disclose’ the gift, we generally advise clients not to provide too much information.”
“If you don’t provide enough information to the IRS, they may decide to reassess the value of the gift in five, 10 or 20 years,” LSL adds. “Have your estate attorney speak with your CPA. Your CPA knows what you own and the tax implications of certain actions. Your estate attorney knows where you want your assets to go and the legal implications of certain actions.”
Giving your children a “living legacy” can help them achieve their goals. If your son wants to get on the property ladder, that $250,000 could make a big difference. From an estate tax perspective, it makes little difference if your estate is not large enough to pay estate tax. Be aware of unconscious bias against a child.
Happily, this is clearly something you care about.
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Previous columns by Quentin Fottrell:
My friend co-signed a loan on a BMW and the driver defaulted on it. They both faced a $5,000 dilemma. What happens now?
“Food and housing are expensive for a family of 7”: I’m 41 and have $46,000 in credit card debt. Would I raid my $1.2 million IRA?
Is my friend entitled to her late father’s multi-million dollar real estate empire? His widow claimed they were drowning in debt.
