A single-family home for sale in Vancouver. Rather than leaving your home to your children, it’s better to think about how you can use the value of your home to help.JENNIFER GAUTHIER/The Globe and Mail
Many parents I meet with want to help their adult kids become homeowners. They’d either like to set aside money to help with a down payment, or pass the family home down to the kids.
This planning often starts when children are little, with parents worrying their kids won’t be able to afford a home. A CIBC report from 2024 found that almost a third of first-time buyers got financial help from family and the average amount of the financial aid was $115,000,
But parents need to think carefully about whether this help is financially feasible. Setting money aside when the kids are young and expenses are high can stress the household budget and impede saving for retirement. And hanging onto a house for too long can tie up your cash in one large illiquid asset.
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To help fund their kids’ housing dreams, some parents open savings accounts for them. The idea is to contribute to these accounts over the years and gift the money to the kids when they are ready to buy a home. Parents can pass that money to their kids with no tax implications, but will have to pay tax on any income they earn on the money before they transfer it over.
There is a downside to doing this: the opportunity cost. Putting money into a regular savings account that earns minimal interest is inefficient. That money would be better off in a registered account like a tax-free savings account (TFSA), and it would grow significantly if it were invested in the stock market.
Another route some parents I meet with suggest is to pass along the family home. Most parents bought their homes when prices were more reasonable, and they want to help their kids avoid the pricey real estate market by gifting the house directly.
But leaving your house to your adult child is not the best way to help them. For one, it’s questionable whether they will actually live there. Kids tend to branch out and live elsewhere, and even if they do live in the area, they may be happily settled in their current home. They also might not need the size of home that you have. And what do you do if you have more than one child?
Holding on to your home until your kids are adults can also leave you cash-strapped. If your wealth is tied up in your home and you don’t have a lot of savings, you might end up having to pare back your spending because of a lack of income.
Then there’s the question of timing: generally speaking, people buy houses when they are starting families. This means your kids will need the money when you are in your 50s or 60s – will you want to give up your home at that time? Where would you live?
In short, leaving your house to your kids is impractical.
Instead, it’s better to think about how you can use the value of the home – the equity – to help them when the time comes.
Once you hit your 50s and 60s and the kids have (maybe) moved out, you could sell your home and downsize. Depending on where you live, downsizing doesn’t always leave you with much money. Moving into a small condo or to a cheaper location will probably free up more cash.
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Renting will give you the biggest cash windfall to gift to your kids, but you need to make sure that you have enough to pay that rent for the remainder of your lifetime.
If you aren’t ready to sell your house when your kids want to buy one, you could borrow against your home by getting a mortgage or increasing the size of your existing one. It can be a smart way to access the equity in your home when lending rates are reasonable. It can even make more sense than giving them money you have invested.
When mortgage rates are lower than the rate of return you are earning on your investments (taking taxes into consideration), borrowing is a good financial option. This would require rates of around 5.5 per cent or lower, but it depends on what kind of investments you have. When you eventually sell your home, you pay off the loan and pocket the rest.
All of this advice comes with a big caveat: Don’t sacrifice your own retirement to get your kids into the housing market. Home ownership isn’t the be-all-and-end-all of financial stability, and your kids can build a good life without owning a home.
Anita Bruinsma is a Toronto-based certified financial planner and a parent of teenage boys. You can find her at Clarity Personal Finance.