Helping clients buy a child a home means navigating gift tax rules

As "giving while living" gains traction among wealthy families, and as younger buyers struggle to break into the housing market, more clients are asking advisors whether buying a child a house makes sense. Nearly a quarter of first-time buyers used a gift or loan from family for their down payment in 2025, according to the National Association of Realtors. Advisors say the strategy can work well for estate planning, but only when clients understand the tax mechanics and manage the family dynamics that come with it.

Why the strategy appeals to clients

Jennifer Raess, associate general counsel, estate & tax product at Vanilla, said helping a child or grandchild buy a home lets a client transfer wealth while they're alive to watch them enjoy it — something they don't get with bequests at death. It also removes the assets used to buy the home, and all future appreciation, from the client's taxable estate. For the recipient, it means building equity instead of paying rent.

"Beyond the balance sheet, the personal benefits are just as real: it relieves financial stress for the next generation, provides stability, and often keeps families closer together, both geographically and relationally. This is the essence of 'giving while living' — you get the satisfaction of seeing your support change your family's trajectory rather than having it happen only after you're gone," Raess said.

Brad Owen, regional director & partner at EP Wealth Advisors, said clients in Southern California raise the topic constantly. "In a couple of recent situations, we've seen clients become the 'Bank of Mom and Dad,' either lending their children money to help fund the purchase or making an outright gift. The financial benefit is that it can help the next generation become homeowners sooner and begin building equity rather than continuing to rent. Just as importantly, parents often get a great deal of satisfaction from seeing their children benefit from their wealth during their lifetime," Owen said. Advisors covering estate planning strategies for high-net-worth clients say the appeal is now showing up in client meetings across price points, not just among ultra-wealthy families.

Gift tax rules families need to navigate in 2026

A home purchase almost always exceeds the annual gift tax exclusion, which the Internal Revenue Service has set at $19,000 per donor in 2026, or $38,000 for a married couple who elect to split gifts. Raess said the excess is a taxable gift that draws down the client's lifetime exemption and requires a gift tax return, IRS Form 709, to be filed. A gift to a grandchild is a direct skip that also requires allocating generation-skipping transfer exemption to avoid a second layer of tax. Complexity multiplies if a parent stays on title or keeps living in the home, Raess said, since a retained interest can pull the property back into the parent's estate.

"There are practical, non-tax traps too: an outright gift may affect a college student's financial aid picture, and a younger beneficiary may not be ready to carry the responsibility of owning a house — a trust to own the property may be a consideration, though this brings its own complexity around trustee selection and when the beneficiary takes ownership," Raess said.

Owen said families should also weigh a properly documented intrafamily loan as an alternative to an outright gift. "In that situation, families need to pay close attention to the promissory note, interest rate and repayment terms. We generally recommend close coordination among the family's financial advisor, estate-planning attorney and CPA before putting any of these strategies into place," Owen said.

David Handler, a partner in the trusts and estates practice at Kirkland & Ellis LLP, said advisors should push clients to think beyond the single transaction. "Consider fairness issues between the children. Will they receive the same amounts, and if not, will that cause conflict? Finally, make sure the child can afford to keep and maintain the home, including utilities, property taxes, repairs and general upkeep maintenance. Even if the house was free, these expenses can be significant," Handler said.

Advisors as the neutral voice in family conversations

When parents give unequally across multiple children, Raess said advisors add the most value as a neutral facilitator — convening a family meeting and framing the conversation around the parents' values and intent rather than dollar amounts. "It's worth reassuring parents that unequal lifetime gifts are perfectly acceptable; the key is keeping a clear record of what's been given so nothing is a surprise later. When lifetime giving has been uneven, it can be balanced out at death — a life insurance policy can deliver an equalizing amount to less-supported children, or the estate plan can rebalance through adjusted bequests and residuary distributions," Raess said.

Owen said the same principle applies with his clients. "One child may benefit tremendously from help buying a home today, while another may have different needs later. That can create anxiety for parents and, if it's not communicated well, resentment or misunderstandings among siblings. An advisor can help create the space for those conversations and help parents explain the intent behind their decisions. The goal isn't necessarily to make every gift identical; it's to make the family's decisions thoughtful, intentional and understood," Owen said.

Handler said the advisor's job is to raise the equalization question directly with clients considering gifts tied to their retirement planning and gift tax strategy. "Remind them that not everything needs to be equal. The children may live in more or less expensive locations and may be in different personal financial situations," Handler said.