Home Advantage

By Sally S. Stich

WHEN JACK and Jaye Hickey decided to sell their classic six-bedroom, Cape Cod house on the 17th tee of the Skokie Country Club, in Glencoe, Ill., they counted on the usual headaches. Open houses, listing agents and a broker's fee are par for the course. But

before they even spoke with a real estate agent, an unlikely buyer emerged: Roger Hickey, 43, the youngest of their five children. "It had never entered my mind to sell the house to one of my children," says Jack, 78, "but Roger had given it a lot of thought."

It would take some effort, but Roger suggested that he and his father each hire an appraiser to determine the fair market value for the home. Then they would average the two appraisals to arrive at a selling price. The father offered to deduct what would have been the real estate commission.

In October 2002, Roger, his wife and their five children took possession of the house, while the senior Hickeys moved to a home at Classic Residences by Hyatt in nearby Glenview. Everyone felt like a winner. "Just knowing the house is still in the family has a lot of emotional value for me and my wife," says Jack. And Roger, who is the host of the family's Christmas Eve dinner this year, is delighted to be in the home he has loved for more than 25 years.

The Hickeys' tale is becoming a more common suburban phenomenon, experts say. It makes financial sense: parents get retirement income, and kids get an appreciating asset. "With real estate prices skyrocketing in the past 10 years, people's homes increasingly make up a significant portion of their retirement portfolios," says Dennis Belcher, past chairman of the section of real property, probate and trust law of the American Bar Association (A.B.A.). For the kids, it's a way, involving minimal risk, to get into a house that they might not otherwise be able to afford.

Take, for example, Pauline Cotnoir, 82, who last year decided to sell the house in Newark, Del., where she and her husband had raised eight children. Eager to move to Sunrise Senior Living in nearby Wilmington and also to help her daughter and son-in-law, Jacqueline and Peter Hannaford, who had lived with her for eight years, Cotnoir offered the couple the chance to buy the 1920s colonial for 80% of the fair market value. "Essentially my mother gifted us the equivalent of a 20% down payment," says Jacqueline, 37, "which helped us a lot financially." Cotnoir got the money she needed to live comfortably, and Hannaford and her family have a home that not only has manageable mortgage payments but also comes with amenities full of good memories--like bookcases that her dad built.

Some parents seal the deal by holding the mortgage. "The benefit of not taking all the cash up front is twofold," says Jan Culver, a CPA and senior vice president for McDonald Financial Group Trust Services. "Assuming the kids are reliable about making payments, this gives parents a steady stream of retirement income at a fixed rate of interest, which is a lot less risky than taking a lump sum and investing it in the stock market. It can also potentially save money for the kids because the rate of interest that must be charged on a private loan can be 1% to 2% lower than what a mortgage lender charges."

Selling the home to the kids can be a great estate-planning move. John Sestina, 62, a certified financial planner and co-founder of the National Association of Personal Financial Advisors, is thinking ahead to the day when he and wife Bobbi no longer want to take care of their 8,500-sq.-ft. house in Columbus, Ohio, and also looking for a way to reduce his federal estate taxes. "If I ever tried to sell [this house], my wife and daughter would kill me," he says, "because they both love it."

The plan is for Alison, 30, and her husband Stephen to purchase a condo that one day John and Bobbi will move into in exchange for their home. There will be no mortgages (if the kids still have one when the trade takes place, they have to pay it off), and because the values of the two properties are not equal, John will gift the difference, using up to $1 million of his lifetime gift exemption. "Whether you sell or gift," says Sestina, "you want to unload this appreciable asset from your estate before you die to reduce your estate taxes." Before trying a similar move, remember that taxes are tricky: an estate tax attorney is probably necessary to keep it all straight.

No matter how fabulous this arrangement sounds, be sure to think it through. "Homes are a highly emotional asset," says Eileen Gallo, vice chairwoman of the A.B.A.'s committee on psychological and emotional issues of estate planning. "You don't want the kids happily moved in while you are unhappily moved out." Make sure you aren't selling or gifting the house to a child who can't afford it. (Jack Hickey made Roger prove that he had sufficient income.) And, says Jennifer Jordan McCall, co-chairwoman of the trusts and estates department at Pillsbury Winthrop, you shouldn't attach strings. If you can't bear to see your kids redecorate, the transaction is probably doomed.

When the arrangement works, it can be a sweet deal for many families. The next generation is taking notice: Roger Hickey's daughter Irene, 13, has already told her dad that she wants the house someday.