By Attorney Suzanne Sayward
Recently The Boston Globe ran an article titled, “For Love or Money, More Families Living Together,” which focused on the number of adult children and their parents living in the same household. The article stated the number of multigenerational U.S. households had risen by 30 percent between 2000 and 2009, citing the poor economy as a pivotal reason for the increase. Another reason families move in together is so children can support their parents as they age. Sometimes parents and children will purchase a home together or build an addition to an existing home for this purpose. While this can work well for many families, it’s always advisable to formalize an agreement that addresses conditions and issues well ahead of time.
Here are five important issues to consider before parents and children purchase a home together or add an in-law apartment.
1. How to take title. Title refers to the name or names on the deed to the property. If the parties are “joint tenants with rights of survivorship,” this means the property will belong automatically to the survivors when an owner dies. This may be preferable for long-term care planning purposes, but may not be consistent with the owners’ wishes regarding distribution of their assets at death. Alternatively, parents and children could own the property as “tenants in common.” This means the share of a deceased owner will pass in accordance with his Will (or under the intestate laws if there is no Will). Other common ways to take title include granting parents a life interest or holding property in trust.
2. Inheritance Issues. Adult children are more frequently adding on to their homes to provide living quarters to parents. The money for the addition often comes from the parents who sell their home to fund the construction. Depending upon the cost of the addition and the size of mom and dad's estate, the proceeds from the sale of the home used to build the addition could represent a significant chunk of the parents' assets. So what happens if there are other children in the family? From the point of view of the child whose home has been improved to accommodate mom and dad, she does not want to have to sell her home when the parents die in order to pay her siblings their share of the funds that mom and dad invested in her home. From the parents' point of view, they want all of their children to share equally in their estate at their deaths. Since every family's situation is unique, the different ways to resolve this issue must be carefully considered in order to find a solution that works well for everyone involved.
3. Tax Consequences. There are almost as many potential tax issues to consider in these situations as there are types of taxes. The parties need to review the consequences of the various ways to structure the transaction in light of estate taxes, gift taxes, income taxes and capital gain tax. While you don't want to let the tax tail wag the dog, you don't want to be surprised by an unexpected, and perhaps expensive, consequence because you were unaware of the tax ramifications of your actions.
4. Long Term Care Consequences. Since providing care for aging parents is often one of the reasons parents and adult children decide to live together, it is vital to understand how the transaction will be viewed in the event a parent needs to apply for Medicaid benefits for nursing home care. The Medicaid program imposes an ineligibility period of up to five years on individuals who give away assets. As such, it may be important to clearly establish that the parents are purchasing an asset for fair market value, rather than making a gift to their child when they are paying for the addition to the home.
5. Liability issues. There are potential liability issues for both parents and children to be concerned about when deciding to live together. From the child's perspective, there is concern that if a parent needs to access Medicaid benefits either for care in the community long term nursing home care, the home could be subject to a Medicaid lien for benefits paid on behalf of the parent. On the other hand, a parent's right to live in the home needs to be protected against the possibility that the child and his spouse will divorce and the house will be ordered sold, or awarded to the spouse, or that the child could lose the house to a financial mishap such as foreclosure, bankruptcy, creditors, or a lawsuit.
The bottom line is that while there are many benefits to parents, children, and grandchildren sharing a household, it is very important to give this situation careful consideration and explore all of the options before entering into such an arrangement.
This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
Attorney Suzanne Sayward is a partner with the Dedham law firm Samuel, Sayward & Baler LLC and served as the 2009 president of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com.
