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Navigating the Nest: The Impact of Boomerang Kids Living at Home on Estate Planning and Property Titles



Helping mom at home
Cooking with mom

Today more young adults are living at home with their parents than at any time since the 1940s. While there are many different opinions about this trend and the cause of its recent prevalence, the primary motivation for y



oung adults staying at home with their parents is usually related to finances.

Most adult children who still live at home have future plans to move out at some point. However, if one or both of their parents pass away prior to that time without addressing the adult child’s living situation in their estate plan, it can present legal issues.


An estate plan should be updated every 3 to 5 years. If you have an adult child who still lives at home or recently had an adult child move back in with you, it may be time to review your plan and make any necessary changes to ensure that your wishes are adequately addressed.

Almost Half of Young Adults Still Live at Home

A sign of tough economic times can be evidenced by the large number of young adults living at home with their parents. According to a recent survey by the Harris Poll for Bloomberg, about 23 million—or 45 percent—of 18-to-29-year-olds are living with their parents.[1] That is the highest level since the post-Depression era. Bloomberg cites economic headwinds like high inflation, the lingering effects of pandemic lockdowns, student loan debt, unaffordable home prices, and an uncertain job market as reasons why young people are staying home en masse.


The majority of those surveyed said the decision to live with Mom and Dad was motivated by the following financial reasons:

●        Saving money (41 percent)

●        Inability to afford to live on their own (30 percent)

●        Paying down debt (19 percent)

●        Recovering from emergency costs (16 percent)

●        Losing their job (10 percent)


Opinions are split on the importance of parents charging rent to adult children who live with them. Around 57 percent of US adults told Newsweek that an adult child living at home should be charged rent; just 28 percent said an adult child should be allowed to live with them rent-free. A Lending Tree survey found that 73 percent of parents would charge rent to an adult child living at home.[2]

Boomerang Children and Estate Planning

The phenomenon of the not-so-empty-nest raises questions that should be addressed in an estate plan.

Bad Idea: Adding an Adult Child to your Home’s Title

Moving back home is not always the result of a child’s money problems or financial circumstances. The second-most common reason cited in the Bloomberg poll was taking care of older family members (30 percent). Helping with family expenses (28 percent) ranked fourth.

Maybe one parent passed away and the surviving parent either does not want to live alone, requires living assistance, or is on a fixed income and needs help making ends meet. In such situations, many people believe that adding their adult child to the deed of their house as a partial owner in Joint Tenancy is a good idea. From an estate planning perspective, making such a gift to an adult child is a terrible idea.


Adding an adult child to the title of a parent's house can seem like a straightforward way to manage estate planning, but it comes with several potential legal, financial, and personal complications:


1.    Loss of Control: By adding a child's name to the title, the parent shares ownership and thus loses some control over the property. This means that major decisions about the property, such as selling or refinancing, cannot be made without the child's agreement.

 

2.    Exposure to the Child’s Creditors: If the child has debts or legal issues, the property could be vulnerable to claims from their creditors. This could even lead to a forced sale of the home to satisfy such debts. Expensive court processes and lawyer fees could be involved.

 

3.    Potential Tax Consequences: Adding a child to the title can result in unfavorable tax implications. For example, if the property is not the child's primary residence, they may lose the capital gains exemption when the property is sold. Furthermore, the child might miss out on the stepped-up basis they would otherwise receive if they inherited the property, leading to higher capital gains taxes upon sale.

 

4.    Medi-Cal’s Right to Recovery: If a parent enters a Nursing Home and a large Medi-Cal bill is generated (i.e., the average cost of a nursing home in California is $12,000 per month), Medi-Cal will have a right to recover the money Medi-Cal paid to the nursing home from the probate estate of the parent who is second to die. IF the parents transfer title into a Revocable Living Trust, Medi-Cal cannot put a lien on the home and they have no right of recovery against Living Trust assets under current California law. This would not be available if the title to the home was transferred to a child.

 

5.    Family Disputes: Adding one child to the title and not others can lead to disputes or feelings of unfairness among siblings, potentially leading to family strife or contested wills after the parent’s death.

 

6.    Complications in Estate Planning: If the parent’s will conflicts with the title arrangement (e.g., the will says the home should be split among all children but only one is on the title), it can create legal complications and possibly lengthy probate proceedings.


These issues highlight the importance of considering alternative estate planning tools, like creating a revocable living trust, which might better achieve the desired outcomes without these complications. It is advisable to consult with a legal professional specializing in estate planning to explore the best options.

When an Adult Child is a Tenant

The likelihood of an adult child living at home and paying rent to their parents is not trivial, as it can determine the child’s status as a tenant or guest. Tenants have legal rights under landlord-tenant laws. If there is a written or even a verbal rent agreement between parent and adult child, the child may be considered a tenant, granting them certain legal rights and protections, and therefore it might not be possible to just kick them out. An adult child who is a legal tenant would have the right to an eviction process that involves a court hearing.


Eviction might not come up when the parents are alive, but it could become a problem when they pass away and the estate plan orders the sale of the house and the division of its proceeds to beneficiaries. Additionally, the adult child might not have anywhere else to go or the financial means to make alternate arrangements. Also, to further complicate matters, the estate executor is likely to be a sibling, raising the possibility of family strife.

Gifting a Family Home to a Live-in Adult Child

Mom or Dad could opt to leave their house to an adult child living at home through their estate plan. This action raises a different set of questions:


●        Do Mom and Dad have other children?

●        If they do, would the live-at-home child/heir be required to buy out their siblings’ interest?

●        In the event of a sibling buyout provision, would the live-at-home adult child be able to afford the house or obtain financing?


Even if the adult child could obtain financing to buy out their siblings, somebody who has never owned a home before might not be financially prepared for hidden and unexpected expenses beyond the monthly mortgage payments. Property taxes, HOA or condo association fees, insurance, utilities, and repair and upkeep costs can easily add up to thousands of additional dollars per year.

Parents wishing to leave the family home to an adult child currently living there might have their hearts in the right place, but without addressing the financial considerations of owning a home, they could be overburdening their adult child, which could ultimately result in an unfortunate or unintended outcome.


To help appease the siblings of the child receiving the gift of the home, parents could gift other assets to their other children in an amount needed to offset the share of the value of the home they would otherwise receive. While this would give the home to the child without the need to pay off their siblings, the child would still have to contend with the financial obligations of owning a home discussed above. This issue can be fixed with a good life insurance policy to ensure there is enough cash to solve such problems.

Every Family Is Different. Create an Estate Plan That Fits Yours.

For better or worse, multigenerational family living arrangements have made a comeback. And while the stigma of having an adult child at home is mostly gone, that does not mean it does not present potential difficulties—both in the present and the future. Parents should know that “fair treatment” may look different for some of their children and ultimately that completely “equal treatment” of their kids may not be possible. An adult child who has yet to fly the nest due to financial struggles may call for special attention in an estate plan. It could also be the case that parents would like to compensate an adult child who moved back home to help them out.


Whatever your family situation, careful planning can ensure that your intentions are made clear, your loved ones are properly taken care of, the potential for conflict is minimized, and your estate is taxed as little as possible. To create or update an estate plan, please contact our office and schedule an appointment.


[1] Paulina Cachero & Claire Ballentine, Nearly Half of All Young Adults Live with Mom and Dad—and They Like It, Bloomberg (Sept. 20, 2023), https://www.bloomberg.com/news/articles/2023-09-20/nearly-half-of-young-adults-are-living-back-home-with-parents.

[2] Sophie Lloyd, Why More Parents Are Charging Their Adult Children Rent, Newsweek (Apr. 6, 2023), https://www.newsweek.com/charging-adult-children-rent-homeowner-parenting-1793021.

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