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For many clients, their primary residence is their most valuable asset, making it central in estate planning. However, there isn’t uniformity when it comes to dealing with a house in estate planning, meaning what’s suitable for one client may not be appealing to another.
Of course, some clients make things easier on themselves by selling their primary residence, presumably at a profit, moving into a smaller space and/or to a lower cost of living area where they use the proceeds from that sale to bolster their retirement accounts. But even in that scenario, there’s still a house that needs to be dealt with at some point.
Fortunately advisors and clients alike, the “fixes” are small in number and can be easily conveyed to clients. Use the handy acronym “SGP” for sell, gift or pass it down to remember the options for houses in estate planning conversations.
To Sell or To Gift? That is the Question.
Obviously, we’re looking at just two of the three options in this section: Selling or gifting. Both scenarios assume the involvement of an heir and both should be discussed with advisors and tax professionals.
“If you're looking to move or put your home's equity to use elsewhere, selling the home to a child or other heir could be a good option,” according to Charles Schwab. “Doing so removes the property from your taxable estate and establishes a new cost basis—meaning the capital gains on any future sale will be calculated using the value of the home on the date of the transfer rather than your original purchase price.”
When selling a house to an heir, there’s an obvious temptation to give the buyer “a good deal” by agreeing to a price that’s well below market value, but that idea isn’t all it’s cracked up to be because the buyer could be on the hook for gift taxes if the gap between the price paid and true market value is unusually wide. Said another way, a client probably isn’t doing their kids any favors by selling them a $1 million house for $500,000.
Gifting a house to an heir or heirs could have undesirable tax implications for high-net-worth clients if the transfer of ownership occurs while the client is alive.
“As generous as it is to gift a home to an heir during your lifetime, it could have negative tax repercussions,” adds Schwab. “That's because such a gift counts toward your lifetime gift tax exemption. That might not seem like an issue now that the combined estate and lifetime gift tax exemption is $15 million for individuals ($30 million for married couples) in 2026. State-level gift, estate, and inheritance taxes could also be a factor, depending on where you live.”
Don’t Pass on Passing It Down
Bequeathing a house is clearly generous, but as noted above, there are tax considerations. With that in mind, passing it down is a desirable option for many clients. In that scenario, the client retains ownership of the house until they pass on, but there are clear mandates in a will or a trust regarding to whom the house goes upon the client’s death.
For example, a will is useful for clients that have multiple kids, say two. In that document, the client lays out 50% of the house to Child A and 50% to Child B or something along those lines. The downside of wills is that some involvement with probate is usually required. Trusts can mitigate that exposure.
“Another way to avoid probate is through a Qualified Personal Residence Trust (QPRT), which transfers the property into an irrevocable living trust, allowing you the benefit of greater control over how the property is managed and under what conditions it can be sold,” concludes Schwab. “The home would then pass out of your estate to your beneficiaries upon the termination of the trust.”
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