Did you know that 17 percent of the U.S. population – that’s more than 50 million Americans – are living in households with two adult generations?
Some of these are homes where “boomerang” children have returned home after college. But in many cases, seniors who no longer want to live alone (or are no longer able to live alone) are living with their middle-aged children. Sometimes the senior moves in with the children, sometimes the children move in with the senior, and sometimes both generations pool resources and buy a new home together.
In most cases, this works out well for everyone. But there are a lot of financial and legal issues that arise from such a relationship, and you’ll want to make sure you’ve accounted for them in your real estate, tax and estate planning. Not doing so at the beginning can cost a lot of money and stress down the road.
For example, suppose Louise is having some trouble taking care of herself, and she moves in with her daughter Susan and Susan’s husband Ted. It would be good if the family had an open discussion about these issues at the outset:
- If Susan and Ted move into Louise’s house, what happens when Louise passes away? Do Susan and Ted have to move out? If Louise leaves them the house, is that fair to Susan’s siblings? If Louise tries to make things fair by leaving her savings and investments to the other siblings, what happens if that money ends up being spent on Louise’s future medical care?
- Suppose Louise pays for an in-law addition to Susan and Ted’s home. What guarantees should she have about being able to live there? What happens if, despite everyone’s best intentions, the arrangement doesn’t work out, or Louise needs additional care that the family can’t provide? Do Susan and Ted simply get the advantage of the increase in their property value? What if Louise needs the money she put into the house to live on? And how does paying for the addition affect Louise’s eligibility for Medicaid?
- How do the answers to these questions change if Louise, Susan and Ted buy a house together?
- What are everyone’s expectations in terms of paying for living and housing expenses? If Susan and Ted have young children, will Louise be expected to help with child care?
- What happens if Susan gets a great job offer in another city? Or if Susan and Ted get divorced?
- What if Louise becomes disabled? Will Susan be expected to give up her work to provide care for her? If so, will Louise 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’s especially important if the senior is living with one child but there are other children in the family, because of the possibility of hard feelings or conflicts between the caretaker child and the other children.
One topic for discussion might be the form of home ownership. Some possibilities include:
- Joint ownership. If Louise, Susan and Ted own a house as joint tenants with right of survivorship, then if Louise passes away, the house will go to Susan and Ted without having to go through probate. If the house is sold while Louise is alive, all three will get equal shares of the proceeds.
- Tenants in common. If Louise, Susan and Ted own a house as tenants in common, then if Louise passes away, her one-third share will go to whomever she names in her will. This might be fairer to other family members, but it doesn’t avoid probate. Again, if the house is sold while Louise is alive, all three will get equal shares.
- Life estate. If Louise has a “life estate,” that means she has a legal right to live in the home as long as she wants. If Louise passes away, the house will go to whomever she names as the next owner. This avoids probate. If the house is sold while Louise is alive, then Louise and the next owner will typically split the proceeds according to a complicated formula.
- Trust. Putting the house in a trust is the most flexible approach, because the trust can say whatever the person creating it wants. It can guarantee Louise the right to live in the house, and it can also take into account changes in circumstances, such as if Susan were to pass away before Louise. And it avoids probate.
All of these options have different tax consequences, and can result in different treatment by Medicaid if Louise needs help paying for care at some point. There are other legal complexities, too, which is why it’s always wise to talk to an elder law attorney whenever a senior is moving in with children.