More young adults live at home with their parents today than ever since the 1940s. While there are many opinions about this trend and the cause of its recent prevalence, the primary motivation for young adults staying at home with their parents is usually related to finances.
Most adult children still at home plan to move out at some point. However, if one or both of their parents pass away before that time without addressing the adult child’s living situation in their estate plan, it can present legal and familial issues.
We recommend that your estate plan be updated every four years. If an adult child still lives at home or recently moved back in with you, it may be time to review your plan and make any necessary changes to ensure your wishes are adequately addressed.
Many young adults living at home with their parents is a sign of tough economic times.
According to a recent Harris Poll for Bloomberg survey, about 23 million—or 45 percent—of 18-to-29-year-olds live 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 young people stay home.
The majority of those surveyed said the decision to live with Mom and Dad was motivated by these financial reasons:
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
The phenomenon of the not-so-empty-nest raises questions that should be addressed in an estate plan.
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 caring for 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. An adult child could be added to the house’s deed as a partial owner in such situations.
Avoiding probate might be a desirable goal, but it should be weighed alongside other potential outcomes of co-ownership, such as capital gains tax if the property is later sold, gift tax that may be due because the surviving parent is gifting partial ownership in the home, and potential creditor claims of the child’s creditors. If parents try to avoid probate, they may consider creating a trust to own their interest in the home and their other accounts and property or utilizing an enhanced life estate deed or transfer-on-death (TOD) deed for their home if their state law allows. These techniques can be applied to the parent’s partial interest in the house if the co-ownership is structured as a tenancy in common or to the parent’s total ownership in the home if they choose not to add their child to the title.
Adding a child as a joint owner of a home when multiple children stand to benefit from an estate can raise additional estate planning challenges. For example, a parent could add a live-in child as a co-owner of the home under a tenants-in-common ownership structure and direct their child or other heirs in an estate plan to sell the house and divide the profit among their siblings (and other heirs) upon that parent’s death.3 However, nothing requires the live-in child to share the portion of the sales proceeds attributable to the interest in the property they own directly.
Suppose the child was added as a joint owner with the right of survivorship (rather than a tenancy-in-common co-owner). The home would become 100 percent the child’s by law, and the child would be under no legal obligation to sell the house or share the proceeds, despite whatever instructions are left in a will or given verbally to the child.
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 a parent and an adult child, the child may be considered a tenant, granting them certain legal rights and protections. 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 arise when the parents are alive, but it could become a problem when they pass, and the estate plan orders the sale of the house and the division of its proceeds to beneficiaries. Additionally, the adult child might have nowhere else to go or the financial means to make alternate arrangements. To further complicate matters, the estate executor is likely to be a sibling, raising the possibility of family strife.
Mom or Dad could leave their house to an adult child living at home in their estate plan instead of making them a joint owner and transferring the home to them via a contractual right of survivorship. But this course of action raises a different set of questions:
Even if the adult child could obtain financing to buy out their siblings, somebody who has never owned a home 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 quickly add up to thousands of additional dollars annually.
Parents wishing to leave the family home for an adult child living there might have their hearts in the right place. Still, without addressing the financial considerations of owning a home, they could overburden their adult child, ultimately resulting in an unfortunate or unintended outcome.
Parents could leave their home to their live-at-home child in an estate plan and 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 child the house without needing to pay off their siblings, the child would still have to contend with the financial obligations of owning a home discussed above.
Multigenerational family living arrangements have made a comeback. And while the stigma of having an adult child at home is mainly 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 that “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 want 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, that your loved ones are adequately taken care of, that the potential for conflict is minimized, and that your estate is taxed as little as possible. To create or update an estate plan, please contact the attorneys at Altman & Associates at 301-468-3220 or through email at altmanassociates.net.
