Estate Planning Insights for Adult Children Living at Home

In recent years, the number of adult children living at home has surged, with many seeking shelter due to economic challenges. This trend, known as the "boomerang generation," has raised several questions regarding estate planning for families with adult children still residing at home. For parents who have adult children living under their roof, it's essential to consider how their estate plan will address this unique living arrangement, especially if one or both parents pass away unexpectedly. Estate planning for families with adult children still residing at home.

Estate planning is a crucial tool to ensure that your assets are distributed according to your wishes after your death. For families with adult children living at home, creating a comprehensive estate plan is particularly important to avoid confusion and potential legal complications after a parent's death. This guide will explore key estate planning considerations, including what happens when a parent with a live-in adult child passes away, and how best to structure your estate to avoid issues related to the home and its assets.

Why So Many Adult Children Are Living at Home

As the cost of living rises, many young adults are staying in their family homes longer than previous generations. The reasons for this trend are numerous, but financial challenges are among the most significant. According to a recent Harris Poll for Bloomberg, about 45% of 18- to 29-year-olds are living with their parents. Economic factors such as high inflation, student loan debt, expensive housing, and an uncertain job market have made it difficult for many young adults to live independently.

This phenomenon has become more common in the wake of the COVID-19 pandemic, where lockdowns and financial uncertainty further delayed the transition to full independence for many young adults. With high unemployment rates, an unstable economy, and skyrocketing housing prices, living at home offers financial relief for many.

Economic Pressures

One of the most significant reasons behind this trend is the mounting financial burdens that young adults are facing. The cost of living in major cities has skyrocketed, with housing being one of the largest expenses. Rent prices, especially in metropolitan areas, have been growing faster than wage increases, making it almost impossible for many young adults to afford their own places. Even with a job, the high costs of rent, utilities, and basic living expenses like groceries and transportation often require young adults to either live with roommates or move back in with their parents to save money.

Additionally, student loan debt has become a major financial burden for many young adults. The Federal Reserve reports that U.S. student loan debt has surpassed $1.7 trillion, and for many recent graduates, loan payments are a significant portion of their monthly expenses. The need to manage this debt while also trying to make ends meet has led many to delay moving out and achieving financial independence. For those interested in planning for their future under the weight of such debt, considering estate planning can be a wise step. For more information on effective planning strategies, visit effective planning strategies for millennials.

The Impact of the COVID-19 Pandemic

The COVID-19 pandemic further exacerbated these challenges and accelerated the trend of young adults living at home. During the pandemic, many young people faced job losses, furloughs, or reduced hours, which led to financial instability for many. With unemployment rates reaching historic highs during the early stages of the pandemic, many young adults had no choice but to move back in with their parents to make ends meet.

In addition to financial hardship, the social isolation caused by lockdowns and social distancing measures also played a role in the decision to remain at home. Many young adults found that living with family not only provided financial relief but also offered emotional support during an uncertain time.

Housing Market Challenges

Even as the economy begins to recover, the housing market remains a significant hurdle for young adults looking to live independently. Home prices have continued to rise, driven by factors such as low interest rates, housing shortages, and the increasing demand for larger homes due to remote work and the pandemic's long-lasting effects. Many young adults find it nearly impossible to save enough for a down payment on a home, and for renters, rising rents in major cities have outpaced wage growth, further making it difficult for young adults to afford their own living spaces.

In many parts of the country, particularly in larger cities and tech hubs, rental prices are sky-high. While renting may be a more affordable short-term solution for some, it can still be prohibitively expensive for young adults just starting their careers or those who have been economically affected by the pandemic. Many young people find themselves in the uncomfortable position of choosing between living at home with their parents or facing high living costs in an unfamiliar and financially challenging environment.

Financial Relief and Long-Term Planning

Staying at home offers significant financial relief for many young adults, particularly as they seek to stabilize their finances. By living with parents, they can save on rent, utilities, and other living expenses, enabling them to pay off student loans, save for a future down payment on a home, or simply build up savings that they might not be able to if they were living independently.

Moreover, staying at home allows young adults to focus on long-term goals without the constant financial pressure that comes with maintaining their own household. In some cases, living at home may enable them to take time to further their education, whether through continuing education programs, professional certifications, or even starting their own business. With fewer immediate financial pressures, young adults can better invest in their future.

This trend is likely to continue in the near future, as economic conditions remain uncertain and the barriers to independent living remain high. The COVID-19 pandemic's long-lasting effects on the economy have reshaped the way young adults approach financial independence and life planning. As such, the trend of boomerang children—adult children returning to live with their parents—may become more normalized, prompting a shift in how families plan for the future.

Boomerang Children and Estate Planning

For parents who have adult children living with them, estate planning can become more complicated. If you have a boomerang child or children who are still living at home, it is crucial to address their living situation in your estate plan. Estate planning ensures that your wishes regarding the family home and other assets are clear and legally binding after you pass away.

Adding an Adult Child to the Home Title

In some situations, parents may decide to add their adult child to the title of the home. This could be due to various reasons, such as the child providing assistance with caregiving or helping with financial support. If the home is jointly owned with the child, and the joint ownership includes survivorship rights, the home will pass automatically to the child when the parent dies, bypassing the probate process.

However, adding an adult child to the property title can have potential tax and financial implications. For instance, if the home is sold in the future, capital gains tax may apply to any increase in value. Additionally, if the property is transferred to the adult child as a gift, gift taxes could be triggered. Therefore, it is essential to consider these factors when deciding whether to add an adult child to the property title. For more information on how to navigate these situations, consider consulting resources on effective planning strategies for millennials.

A better option in some cases may be to use a trust, which can hold the title to the home and allow the parents to continue living in the home while naming the child as a beneficiary upon their death. A trust can help avoid probate and provide more flexibility in how the home is distributed to beneficiaries.

Life Estate Deeds and Transfer-On-Death (TOD) Deeds

Another option to consider is a life estate deed, which allows the surviving parent to live in the home for the remainder of their life, with the property automatically passing to the adult child upon their death. This option allows for continued residence and avoids probate, but it is important to understand that the adult child may not have full control over the property until the parent's death. Additionally, a transfer-on-death (TOD) deed is another estate planning tool that can transfer the property directly to the adult child without probate, providing an efficient solution for distributing real estate.

The Challenges of Co-Ownership

While adding a child to the property title may seem like an easy solution, it can create complications when there are multiple children or when the live-in child is not financially able to manage the property on their own. For example, if the live-in child is named as a joint owner with the right of survivorship, they will receive the full ownership of the home when the parent dies, which could lead to potential conflicts with siblings or other heirs.

In cases where the house is to be sold after the parent's death, the surviving child may have the right to refuse to sell, even if the parents had intended for the proceeds to be shared among all the children. To avoid such disputes, it’s important to specify clear instructions in the estate plan about how the home should be handled after the parent's death. For more detailed advice, consider reading estate planning options that can provide a range of strategies.

When an Adult Child Becomes a Tenant

In some cases, adult children may pay rent to their parents while living at home. If a rent agreement exists, either verbal or written, the adult child may have tenant rights under landlord-tenant laws. This means that in the event of the parents’ death, the child may have legal rights to continue living in the home until a formal eviction process is carried out, which could be time-consuming and costly.

It is essential to address this possibility in the estate plan to clarify whether the adult child is considered a tenant or a guest. If the child is a tenant, the parents' estate plan should outline how long the child can stay in the home and what the terms are for transitioning ownership or requiring the child to move out. If the child is not a tenant, the estate plan should clearly state that the home is to be sold and the proceeds divided among the heirs.

Gifting the Family Home to an Adult Child

Another consideration is gifting the family home to the adult child living there. While this may seem like a simple solution, it comes with financial and legal complications. First, the parents must consider whether the child can afford the house once they take ownership, especially if the child has never owned property before. They must also be aware of the financial responsibilities, such as property taxes, insurance, and maintenance costs, which can be burdensome.

If the parents have other children, gifting the home to the live-in child could raise questions about fairness. Parents may need to provide financial compensation to other children to balance out the value of the gift. Additionally, the home’s value at the time of transfer could be subject to gift taxes, depending on the estate’s value. For more detailed guidance on managing such scenarios, consider estate planning and inheritance strategies.

Parents who wish to give the home to the live-in child might consider including a buyout clause for the other children or allocating other assets to the siblings to ensure fairness. The child who inherits the home should be prepared for the financial realities of homeownership.

Protecting Your Estate and Avoiding Conflict

Estate planning for boomerang children requires thoughtful consideration. The goal is to ensure that your wishes are clearly communicated and legally enforceable, while also providing for your children in a way that is fair and respectful of everyone’s needs. For parents with adult children living at home, careful planning can prevent family disputes and ensure that the estate is divided according to the parents’ intentions.

To avoid conflict, it’s a good idea to regularly review your estate plan, particularly when your family’s circumstances change. Consulting with an experienced estate planning attorney can help you craft a plan that addresses your unique situation and provides peace of mind.

Conclusion

Having adult children living at home is becoming increasingly common, and it brings with it unique challenges when it comes to estate planning. Whether you are adding a child to the home title, gifting the property, or simply addressing their future living situation after you pass away, it’s crucial to plan ahead.

An estate plan that is tailored to your family’s needs can provide clarity and reduce potential conflict after your death. As a parent, you want to ensure that all your children are treated fairly, and that your wishes are honored.

Contact an experienced estate planning lawyer today to discuss your situation and create an estate plan that meets your goals, protects your assets, and ensures a smooth transition for your family.