Dear Harry,
Our son is remodeling his house. He and his partner have two children but are unmarried. My wife and I would like to build an add-on to his house to live in during our retirement. We have cash, but don’t know how to structure this financially and protect ourselves so we can stay in our addition if the house is sold, our son and his partner separate, or a nursing home comes into play. We’ve thought about a trust or a life estate.
Dear reader,
This is a complex situation since there are so many ways things might work out. You may all live together and mutually support one another for years or decades. You might find that you’re comfortable living together or that it creates so much tension that the only way for your son to save his relationship is for you to go your separate ways. You may be healthy to a ripe old age or need many years of assistance, whether at home or in a nursing home. There is so much that can’t be predicted that any plan must be flexible and depend on everyone’s good will to make adjustments as reality happens.
Read: Is caring for grandkids bad for you?
My sense is some form of co-ownership makes sense, since both you and your son, and potentially his partner, will be contributing to the house. But you need first to share your expectations to make sure everyone is on the same page. Start by answering a few questions:
· How much will you invest in the house?
· Who will pay maintenance costs?
· Who can decide if the house will be sold?
· If you and your spouse were to move out, would you be paid for your share of the house at that time or simply maintain an ownership interest?
· What happens if your son passes away before you or your spouse?
· What happens to your interest in the house after both you and your spouse pass away?
· If you need care, will your son and his partner provide? If so, will they be compensated in any way?
You can probably come up with a dozen more questions about possible outcomes. (My firm has developed a workbook for this purpose which you can access here.)
I would recommend that each of you, including your son’s partner, answer these questions separately and then compare your responses. Then you can work out an agreement that merges your responses.
Read: Move over, Florida — Pennsylvania dominates ‘best places to retire’ rankings
Finally, put it in writing. The act of writing always brings up new specific questions that need to be answered. In addition, no one’s memory is perfect. A written agreement will serve both as an aid to memory and as a record of what you had in mind, for instance for other family members who may have a different idea of what the arrangement should be.
Read: What neuroscientists have learned about rejuvenating the aging brain—and what you can do too
Given that this could involve ownership of real estate and updating your estate planning documents, you will want to consult with a real estate, estate planning or elder law attorney to make sure there aren’t any issues that you didn’t think of and to draft any necessary documents. Finally, provide for periodic review of the arrangement. As we discussed above, we can be certain that future reality won’t exactly match today’s expectations. We just don’t know how they’ll differ. Everyone should be willing to update the plan as circumstances develop.
