Did you know that almost 20 percent of the U.S. population, or more than 55 million Americans, are living in households with two adult generations?
Some of these are households in which “boomerang children” have returned home after college. But in a great many cases, the situation may involve seniors who no longer want to live alone (or are no longer able to live alone) and are living with their middle-aged children. This arrangement may result from the senior parent(s) moving in with his/her children, or the children moving in with their parent(s). Still, in other instances, all of the parties may pool their resources and buy an entirely new home together.
In most cases, this works out well for everyone. But there are numerous financial and legal issues that can arise from such a relationship, and you will want to make sure that you have accounted for them in your own real estate, tax and estate planning. Not doing so at the beginning can cost a lot of money and undue stress down the road.
For example, suppose Tom is having trouble taking care of himself and he moves in with his daughter, Lisa, and Lisa’s husband, Ted. It would be good if the family had an open discussion about the issues at the outset:
- If Lisa and Ted move into Tom’s house, what happens when Tom passes away? Do Ted and Lisa have to move out? If Tom leaves them the house, is that fair to Lisa’s other siblings? If Tom tries to make things fair by leaving his savings and investments to the other siblings, what happens if that money ends up being spent on Tom’s future medical care so that the receipt of benefit is still lopsided?
- Suppose Tom pays for an in-law addition to Lisa and Ted’s home. What guarantees should he have about being able to live there? What happens if, despite everyone’s best intentions, the arrangement doesn’t work out or Tom needs additional care that the family can’t provide? Do Lisa and Ted simply get an advantage of the increase in their property value? What if Tom needs the money he put into the house to live on? And how does paying for the addition affect Tom’s eligibility for Medicaid?
- How do the answers to these questions change if Tom, Lisa and Ted buy a house together?
- If they all buy a house together, should it be jointly owned or owned as tenants in common? Should Lisa and Ted be the owners, with Tom having “life estate” (i.e., A legal right to live there as long as he wants)? Or should the house be put into a trust? All of these options have different legal benefits and drawbacks.
- What are everyone’s expectations in terms of paying for living and housing expenses? If Lisa and Ted have young children, will Tom be expected to help with childcare?
- What happens if Lisa gets a great job offer in another city? Or if Lisa and Ted get divorced?
- What if Tom becomes disabled? Will Lisa be expected to give up her work and provide care for him? If so, will Tom financially compensate her? How will this work?
These can be difficult questions, but talking about them and incorporating the answers into an updated estate plan is crucial. It is especially important if the parent is living with one child, but if there are other children in the family, there is the possibility of misunderstandings, hard feelings or conflicts between the caretaker child and the other children.