Most of us know someone whose adult child moved back in with them after college, a job loss, or a divorce. In other situations, seniors who have lost their spouse or who no longer can or want to live on their own may also opt to live with their grown children. These multi-generational living arrangements containing two adult generations are common, making up more than 20 percent of households in the U.S., according to the U.S. Census Bureau.
Considerations in Multi-Generational Living Arrangements
Many don’t realize that there are legal and financial challenges that should be considered in multi-generational living situations. These living situations can create challenging questions that families should discuss, such as:
Property Considerations
- If a senior parent pays to build out a finished basement or in-law apartment on their child’s property, who owns the property? Is the parent’s contribution considered a gift for Medicaid purposes?
- If a senior parent pays to build an in-law addition on their child’s house, for example, what guarantees should the aging parent have about being able to live there? What if the aging parent must move out because they need care the family cannot provide? Would the child simply get the advantage of the property’s increase in value? What if the aging parent needs the money they put into an addition to live on?
- If an adult child living with elderly parents contributes to updates on the property, toward maintenance, or provides caregiving services to the elderly parents, should this result in an unequal inheritance?
- If the aging parent owns the house, what happens when they pass away? Will their grown child’s family have to move out of the home? If the aging parent leaves them the house, will the other siblings find that fair?
- Should the title be taken jointly, as tenants in common, with a life estate, in trust, as a family partnership, or otherwise?
- Which family members should be permitted to live in the home?
- What happens with living and housing expenses? What are everyone’s expectations?
- How do things change if everyone is pooling their resources to purchase a new home for the whole family?
- How will utilities, maintenance, repairs, and capital improvements be paid for now and in the future?
Caregiving Considerations
- Who will care for a senior loved one if they become disabiled? Will it be a family member, and will the senior pay them for their services?
- If grandchildren are still living at home, is the aging parent expected to help with child care?
- If a parent cares for grandchildren regularly, should this be monetized and factored into the estate plan somehow?
- Will individuals providing extraordinary care to other family members be compensated somehow?
- Should the value of the real estate be used to compensate family caregivers?
Inheritance Considerations
- Perhaps the aging parent has instead decided to leave their children their savings and investments. However, what happens if the family must spend that money on care for their aging parent? How does the title affect how other heirs receive a share of an inheritance?
Other Considerations
- What are the Medicaid issues if the elder need nursing home care in the future?
- What happens if the aging parent is living with their child and their child’s spouse who end up getting divorced?
Many of these questions can be challenging to answer, which is why an open discussion about them with your loved ones is vitally important. Consider taking notes on the answers and reviewing them together, with an experienced elder law attorney, as your circumstances shift over time. This can help avoid any arguments down the road. It’s of course critical to address all the relevant issues in appropriate elder law and estate planning documents to ensure that what is discussed is addressed properly and in a valid legal document.
Home Ownership Options
From the questions listed above, one of the most critical things is to consider how the property is owned, and to understand your options. Depending on your family’s goals, one of the following options could prove a potentially worthwhile solution:
Joint Ownership
- Joint ownership with right of survivorship means every owner has an equal share of the property and if one owner dies, the other owners inherit the share of the deceased owner, the last living survivor owning the entire property. This right of survivorship can be overcome if one joint owner deeds his or her share into a trust or into an LLC or other entity, which automatically severs the right of survivorship.
- Joint ownership where one or more persons own a life estate (giving them the right to live in the property for their lifetimes) and one or more persons own the remainder interest, meaning those persons will inherit the property upon the death of the life estate owners.
Tenancy by Entirety
Tenancy by the entirety is a type of joint ownership with right of survivorship that is only available between spouses, and provide some limited asset protection.
Tenants in Common
Tenants in common is a type of joint ownership where each owner may own a different fractional share, and on the death of any owner, that owner’s share gets distributed to any person chosen by the decedent via their last will and testament or living trust, or via the laws of intestacy if the owner dies without a will or a trust.
Trust
Most families doing estate planning choose to use a trust to detail all aspects of use and ownership concerning property. Putting the house in trust is the most flexible approach because a trust can say whatever the person creating it wants.
- A trust can guarantee the senior parent the right to live in the house and compensate their grown child for the care they provide. It can also take into account potential changes.
- A trust can include language regarding right of first refusal governing who has priority to purchase the property upon a parent’s death or incapacity.
- A trust can manage funds to cover various expenses related to the real estate, as well as detail the management and use of the real estate tailored to the needs of the specific situation of the family.
- The incapacity or death of a family member and what will happen for future generations can also be handled in the trust. This level of detail is important when dealing with multigenerational shared real estate purchases and use, as well as addressing the estate planning component of this and how the property can be used in the future.
Limited Liability Corporation (LLC)
An LLC operating agreement determines which members will be in charge of the daily operation of the property, payment of expenses and how the ownership interests are divided. Intrafamily loans can be leveraged to make improvements on the property, and the partnership agreement can address many different scenarios for a family should an issue arise.
- There are administrative costs to setting up an LLC to be mindful of — a registration fee and annual filing fees to your state, the legal fees associated with creating the LLC and the LLC operating agreement, and potentially annual tax returns.
- An LLC often allows for easier fractional ownership of a property among various family members and provides for management of shared use. LLCs can also help with asset protection.
- Your LLC must have an Operating Agreement, as the Operating Agreement controls all aspects of the LLC and what happens when one member dies.
Each of the options outlined above also will have different tax results. When you sell the home, you may see different impacts on capital gains, for example. You also could see Medicaid benefits change for your parent if they need help paying for care. Be sure to consult with an experienced estate planning and elder law attorney, such as the attorneys at the Farr Law Firm, to determine what makes the most sense in your unique situation.
Consult an Estate Planning Professional if You Live in a Multigenerational Household
If you are living in a multigenerational household, it’s important to discuss all of the facts and all of the wishes of all family members with experienced elder law and estate planning attorneys, such as the attorneys at the Farr Law Firm, to ensure that your estate planning documents match your wishes and address the issues raised in this article.
With advance planning, regardless of your family situation, you can retain the income and assets it has taken a lifetime to accumulate and the peace of mind that your needs and your child(ren)’s needs will be adequately and properly addressed. If you or members of your family have not done Incapacity Planning or Estate Planning, or if a loved one is beginning to need more care than you can handle, please contact us as soon as possible to make an appointment:
Fairfax, Virginia Estate Planning: 703-691-1888
Fredericksburg, Virginia Estate Planning: 540-479-1435
Rockville, Maryland Estate Planning: 301-519-8041
Annapolis, Maryland Estate Planning: 410-372-4444
Washington, DC Estate Planning: 202-587-2797
About Evan H Farr, CELA, CAP
