I’m thinking of giving my nephew a down payment on a house but I want an equity share in it

A Reddit user is considering giving his nephew a down payment, but doesn’t want to just make the gift free and clear. Instead, he wants an equity interest in the house.  He’s not sure how best to structure the deal,  and he turned to Reddit for advice — but the answers that he got may not have been exactly what he was looking for. 

Here’s what other posters suggested, along with some tips for the original poster (OP) who is considering the gift. 

Should you give a down payment gift but demand an equity share?

The OP explained that he is well off and wants to give his nephew a down payment to buy a house. However, he is concerned about the gift and estate tax rules, as well as his nephew’s willingness to take the money. He thought if he structured the transaction as an investment, with an entitlement to a decreasing share of the equity as they pay down the mortgage, he would avoid these issues.

However, other posters chimed in to say that asking for an equity share in the house would introduce a whole new set of issues. They’d essentially cause the family’s finances to be intertwined for a long time to come, and it could create problems with the nephew’s ability to get a mortgage loan. It could potentially even lead to resentment from either the giver or the nephew, depending on how fast home values rise. And, the nephew may feel a whole lot more uncomfortable knowing his relative “owns” a piece of his home. 

Rather than dealing with all of this stress, Redditors suggested just making the gift.  If the OP and nephew both have spouses, the gift tax exclusion is per giver and also per recipient. The exclusion is valued at $19,000 this year, so that means that the OP and his wife could transfer up to $76,000 total without owing any gift taxes ($19,000 from each of them, to both the nephew and his wife).  If the down payment amount exceeds that, then the extra could simply count toward the lifetime exclusion, which many people don’t hit anyway.

By giving a simple gift, the OP helps out his nephew without creating an ongoing financial entanglement that could cause problems in their relationship– and he avoids having to deal with the complicated process of trying to figure out how to manage having an equity interest in someone else’s house. 

Talking to a financial advisor is a good idea when making large gifts to loved ones

Before the OP makes the gift to his nephew, he may also want to have a quick consultation with a financial advisor. The advisor can help him ensure he’s really in the financial position to make a large cash gift to someone else, as he doesn’t want to gift money only to find out later on that his savings don’t last as long as he thought.

An advisor can also help him determine the best way to transfer the funds and make the gift while minimizing taxes, as well as any potential conflicts that could cause family disharmony. Giving a down payment gift to a nephew is an amazing present that can help set the nephew up for much more security going forward, due to a more affordable mortgage.  By working with an advisor to do it right, the OP and his nephew can both get the maximum benefit from the deal, ensuring that the transaction is a win/win. 

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