In Recovering Economy, More Parents Helping Young Adults With Home Purchase
Fairfax, VA (Law Firm Newswire) October 28, 2014 – Parental cash assistance for a down payment can actually shield a family’s wealth from probate in the future.
The recent recession seriously impacted the U.S. economy and noticeably changed the socio-economic fabric of the country. In that environment, more young adults opted to live with their parents in order to save money. Now that the economy is recovering, another change has helped reverse the earlier trend: more parents helping their grown children accumulate a down payment for a house of their own — an act that also fits in with some parents’ estate planning down the road.
Financial factors have compelled many grown children to ask their parents for assistance and many parents to offer grown children their help.
In 2014, many younger Americans are saddled with staggering amounts of student debt while facing a still-less-than-rosy job market. By contrast, their parents have enjoyed a resurgence in the housing market and stock prices that have, through the “wealth effect,” made them feel in a flusher mood to help the kids.
The trend is measurable well beyond anecdotal observation: in 2013, 27 percent of first-time home buyers received cash from a relative or friend in order to make a down payment. That figure is up from the 24 percent figure set the year before and matches a five-year high. Tougher mortgage lending standards — including much higher required down payments as a percent of a purchase price — are helping sustain those numbers.
Family support is important to many on its own. But in helping their children move into a home of their own, parents could also be taking a prudent step toward their own estate planning.
“The Internal Revenue Service permits each half of a married couple to make a $14,000 tax-free gift to their children each year, which could amount to $28,000 for a down payment,” said Lisa McDevitt, a prominent estate-planning attorney in Fairfax, Virginia. “By making tax-free cash gifts to your child while you are alive, you can prevent those assets from going through probate later.”
The recent price spikes in some real estate markets have been leveling off in a few communities, including the Washington, D.C., metropolitan area. But median home price appreciation is still the norm in D.C. Metro communities such as Arlington, Fairfax, Prince George’s County and D.C. itself.
“The Washington, D.C., area remains one of the costliest housing markets in the United States,” McDevitt said. “And that adds an incentive for parents in the region to help their kids, and themselves, through the annual gift tax exemption.”Learn more at http://www.mcdevittlaw.net