Today, more young adults are living at home with their parents than at any time since the 1940s. While opinions differ on the reasons behind this trend, finances often play the biggest role. Many adult children who remain at home plan to move out eventually, but what happens if one or both parents pass away before that happens, without addressing the adult child's living situation in their estate plan?
If you have an adult child living at home, or if one has recently moved back in, it's crucial to update your estate plan to ensure their situation is clearly addressed.
The Rise of Adult Children Living at Home
A Harris Poll for Bloomberg found that about 23 million—or 45 percent—of 18-to-29-year-olds in the U.S. are living with their parents, the highest level since the post-Depression era. Economic factors such as inflation, high housing costs, student loan debt, and job instability are key drivers. The primary financial reasons cited by these young adults include:
Saving money (41%)
Inability to afford living independently (30%)
Paying down debt (19%)
Recovering from emergency expenses (16%)
Job loss (10%)
Given these pressures, it’s not surprising that many young adults return home or never leave. But when it comes to estate planning, having an adult child living at home can raise legal and logistical challenges.
Addressing Estate Planning for Adult Children at Home
When parents pass away, the fate of the home and the adult child living there may not be clear, leading to potential disputes. Here are key estate planning options that can help avoid issues:
1. Adding an Adult Child to the Home’s Title
In some cases, parents add their child to the deed as a co-owner. This ensures that the child can remain in the home after the parents pass, but it comes with potential consequences:
Joint Ownership with Survivorship Rights**: If the child is added as a joint owner with survivorship rights, the house automatically transfers to the child upon the parent’s death, avoiding probate.
Tenants-in-Common Ownership**: If parents choose this structure, the child owns part of the home, but the parent’s share will pass through probate according to their will.
Life Estate: This allows the surviving parent to live in the home for life, and after their passing, ownership transfers to the child. This avoids probate, but there may still be tax implications.
While adding a child to the title can ensure they remain in the home, it can also create potential tax issues or disputes among other siblings.
2. Gifting the Home in a Will or Trust
Another option is leaving the home to the child through a will or trust. This option allows more flexibility, as the home can pass to the child without the complexities of co-ownership while the parent is alive. However, this raises its own set of challenges:
- Multiple Children: If there are other children, how will the estate be divided fairly? Should the child living at home buy out their siblings, and if so, can they afford to?
- **Financial Preparedness**: Owning a home comes with significant costs beyond a mortgage—taxes, utilities, and repairs—that the child may not be prepared for.
A thoughtful estate plan can offset some of these concerns, such as by leaving other assets to siblings or ensuring the child can manage the financial responsibilities of homeownership.
3. Considering the Legal Rights of an Adult Child Tenant
If the adult child is paying rent to their parents, they may have legal rights as a tenant, which could complicate matters when the estate is being settled. If the estate plan directs the sale of the house, the child may need to be formally evicted, and disputes could arise if a sibling is named as the executor of the estate.
Estate Planning Solutions
Multigenerational living situations require careful estate planning. Parents should consider their child's circumstances and make provisions that align with their intentions and financial realities. Some options to explore include:
- Creating a **trust** to manage property and assets, ensuring the child can remain in the home while avoiding probate.
- Using an **enhanced life estate deed** or **transfer-on-death deed** to pass the home directly to the child outside of probate.
- Gifting other assets to siblings to balance out the value of the home if it’s left to the live-in child.
Final Thoughts
Every family is unique, and there’s no one-size-fits-all solution. Whether you're trying to balance the needs of multiple children or plan for a live-in adult child, clear communication and careful planning are essential. Regularly updating your estate plan—especially if your living arrangements change—can help ensure that your wishes are honored and minimize the potential for family conflict.
If you’re ready to create or update your estate plan, please reach call (559) 625-4205 to schedule a free consultation.
Comments