Living with Mom

Legal issues to consider when parents are living with adult children

by Sean O'Bryan

Anyone that has heard me speak knows that I often discuss the 3 things I see that repeatedly tear families apart at the time an estate is settled. The reasons families fight are most often over: 1.) dividing of personal property; 2.) loans to adult children; and 3.) a parent living with an adult child.

Most people understand why the first 2 issues can create problems. It is the third situation that surprises my clients. The idea of having Mom move in with an adult child, or an adult child moving back home, seems like an ideal solution at the start. They can share expenses, and having a child in the home will lessen the chance of ever needing nursing care. Right? That is what the other family members are told. But unfortunately, it rarely works out in everyone's best interests.

“The idea of having Mom move in with an adult child, or an adult child moving back home, seems like an ideal solution at the start... But unfortunately, it rarely works out in everyone’s best interests”

It should be pointed out at the outset that I refer to Mom - but of course, sometimes the parent we are talking about is Dad - or both Dad and Mom. 

Now, in my experience, after 3 decades of practicing estate planning law, the adult child who offers to live with Mom is often the person least able to handle the health care and financial management responsibilities that come with this decision. All too often, the other children are kept in the dark as to exactly what the arrangement is, and eventually discover that far more than just a simple, convenient living arrangement in exchange for basic rent has taken place. 

The adult child living with Mom neglects the care issues and instead has found a way to place their name on bank accounts, life insurance, and sometimes - even the house. This sounds extreme - but at least a half dozen times each year - I am personally employed to untangle a mess just like this. And many times, the damage is irreparable. Money is lost, eligibility for nursing care assistance is compromised, assets are missing, and families are torn apart.

I have seen several situations where the adult child moving home is at a period in their life where they are divorced, have a dependency issue with drinking or drugs, or have left an abusive marriage. We have experienced an adult child who would wait for their Mother's pension or social security check each month, and rather than using it to pay household bills, spends it on themselves. In a couple of situations, an adult son with a history of spousal abuse moves in with his parent and ends up repeating a pattern of verbal and physical abuse - only this time, the victim is Mom.

People enter into these arrangements with the best of intentions. However, by the time the family sits down in my office - the problems have already started.

Some Background

But first, let's look at some background regarding this issue. 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 households where "boomerang" children have returned home after college. But in a great 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 some 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.

"It would be good if the family had an open discussion about these issues at the outset."

Issues to Consider

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.

When a parent moves in with one of their adult children, communication is the key to avoid hurt feelings

What About Real Estate Ownership?

One topic for discussion might be the form of homeownership. 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.

Conclusion

Now, not all multi-generational living arrangements are doomed to failure. Many work quite well. I, of course, see a disproportional share of the train wrecks. That is what lawyers do. But that said, the key is communication from the outset. It is absolutely imperative that before any move is made, the family sits down twice - first together to thoroughly discuss all of the issues raised in this article, and second, with your estate planning attorney to write up an agreement about these issues. 

“The key is communication from the outset. It is absolutely imperative that before any move is made, the family sits down twice...”

There is nothing that clear communication and a well-written plan can't at least significantly help - and perhaps keep your family from becoming one of those who finds itself torn apart over avoidable issues.