“My son had no financial stake in that property.” (Photo subjects are models.) – Getty Images/iStockphoto
Instead of giving my son a share of the rental property that I own 50/50 with my daughter, I promised to give him $250,000 as an inheritance before I die. The reason was simple: my son had no financial contribution in that property,
I am currently saving this money for him. When it gets to $250,000 including interest, do I give him that money or should he have the $250,000 plus any interest paid? Obviously, I prefer the former scenario.
I’m trying desperately to do right by everyone. How do I offset the equity in the property?
Parent
Related: My dad is giving me $250,000 to buy a house, but he told me not to tell my two brothers. 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, put it in writing.
Your daughter invested in a house and, as you say, brought in some of her money. The house, given the long-term trajectory of the real estate market, will increase in value. Your son has the opportunity to invest that $250,000 in the stock market or perhaps use it as seed money to buy a home of his own.
If you want to ensure that each child receives exactly the same inheritance, down to the last red cent, you could give her the monetary equivalent of your share of the rental property and allow your daughter to own the home. Forcing your daughter to become a joint owner with her brother against her wishes and/or without her knowledge would be a strange move, if you can afford to give your son the cash equivalent.
The clue is in your question: if the deal was “I’ll give you $250,000…” then you should really give him $250,000, with no extra interest on top. Interest is simply a method of accumulating the pledged amount. You are not operating as a bank, and if you have not promised him interest, he is not entitled to any. Ultimately, you want to make sure that everyone receives a similar gift and/or legacy.
Imagine you entered into this real estate transaction in 2009 and gifted your son $250,000. It would have gone rogue given the slump in property prices, which has taken the better part of a decade to recover. You’re a generous parent, not a Federal Reserve board member or a Nobel Prize-winning economist—and certainly not a fortune teller. Sometimes non-cash legacies leave a lot to chance.
To equalize the inheritance later, you can simply adjust the distribution in your will or trust, reducing your son’s and daughter’s shares by the amount you each donated. A “hotpot clause” in your will ensures fairness by effectively deducting advanced gifts from their inheritance share, retroactively calculating what each heir has already received and helping to ensure that everyone receives an equal amount.
“It also has a basis in the doctrine of satisfaction—the assumption that a parent would not want to benefit twice one child at the expense of others,” according to the Society of Will Writers. “A hotpot clause does not require repayment of the gift to the testator’s estate. It is merely an acknowledgment of its existence so that the beneficiary’s share of the estate can be reduced and the end result is that all the children received the same benefit overall.”
My only concern is that 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 suggest having up to a five-year “just in case” fund in retirement so you have enough reserves during an economic downturn and stock market crash.
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Considering you have to save up to give your son $250,000 raises an amber red flag to me. Never compromise your own financial security for a gift or legacy promised during your lifetime. Talk to your estate planning attorney and accountant about your current assets—which include your primary home—and your future needs in retirement. This could include long-term care or other unforeseen medical or home-related expenses.
Under Internal Revenue Service rules, the lifetime and gift tax exclusion for 2025 is $13.99 million (or $27.98 million for married couples). You can also give $19,000 per child per year (or $38,000 per year for married couples) without having to include the cash gift on his annual income tax return to the IRS.
Gift tax applies to the transfer of wealth during life and is paid by the donor; property tax is levied on the deceased’s estate. Earlier this year, Congress passed the One Big Beautiful Bill Act, which increased the basic amount for the gift exclusion. Beginning in 2026, the lifetime exclusion per individual will be $15 million, or $30 million for married couples.
It is best to over-distribute with the IRS. “The gift return is an informational return because there is a lot of information and no taxes are sent to the IRS,” says LSL CPAs, which is based in Irvine, Ca. “Because the IRS requires that enough information be submitted to ‘adequately disclose’ the gift, we usually advise clients to err on the side of too much information.”
“If you don’t provide enough information to the IRS, the IRS may decide to reassess the gift in 5, 10 or 20 years,” LSL adds. “Have your estate attorney communicate with your CPA. Your CPA knows what you own and the tax implications of specific 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 wanted to get on the property ladder, that $250,000 could make a big difference. From an estate tax perspective, it doesn’t make a precious difference if your wealth isn’t large enough to be subject to estate taxes. Just be aware of unconscious bias towards one child over another.
Fortunately, this is clearly something that concerns you.
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Previous columns by Quentin Fottrell:
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