Today, more young adults are living at home with their parents than at any time since the 1940s. While opinions vary on this trend’s causes and implications, financial reasons are typically the primary motivation. Most adult children who still live at home plan to move out eventually. However, if their parents pass away before that time and without addressing the adult child’s living situation in their estate plan, significant legal issues can arise.
Updating an estate plan every 3 to 5 years is crucial. If you have an adult child living at home or one who has recently moved back in, now may be a good time to review your plan. This ensures that your wishes are adequately addressed and can prevent potential legal complications.
Almost Half of Young
Adults Still Live at Home
A sign of tough economic times is the large number of young adults living at home. According to a recent Harris Poll for Bloomberg, about 23 million—or 45%—of 18-to-29-year-olds live with their parents.[1] This is the highest level since the post-Depression era.
Economic headwinds such as high inflation, the lingering effects of pandemic lockdowns, student loan debt, unaffordable home prices, and an uncertain job market are key reasons. The majority of those surveyed cited financial motivations for staying with their parents:
- Saving money (41%)
- Inability to afford living independently (30%)
- Paying down debt (19%)
- Recovering from emergency costs (16%)
- Job loss (10%)
Opinions are split on whether parents should charge rent to adult children living at home. Around 57% of U.S. adults told Newsweek that adult children should pay rent, while only 28% said they should live rent-free. A Lending Tree survey found that 73 percent of parents would charge rent to an adult child living at home.[2]
Adding an Adult Child to the Home Title
Living with parents isn’t always due to financial issues. The Bloomberg poll noted that 30% of young adults live at home to care for older family members, and 28% do so to help with family expenses.
In situations where one parent has passed away and the surviving parent needs support, adding the adult child to the house’s deed might be considered. This could mean:
- Joint ownership with survivorship rights: When the surviving parent dies, the house passes automatically to the adult child, avoiding probate.
- Tenants-in-common ownership: The surviving parent’s share becomes part of their estate and may be subject to probate.
- Life estate: The parent has the right to live in the home for their lifetime, and the house passes to the adult child upon their death, avoiding probate.
Avoiding probate might be desirable but should be weighed against potential outcomes. These include capital gains tax if the property is sold, gift tax implications, and creditor claims. Parents might consider a trust, enhanced life estate deed, or transfer-on-death deed, depending on state laws.
Adding a child as a joint owner can be complex if there are multiple children. For example, if a parent adds a live-in child as a tenants-in-common owner, that child isn’t legally required to share proceeds from the sale of the house. Joint ownership with right of survivorship means the home automatically becomes the child’s, regardless of any instructions left in a will.
When an Adult Child is a Tenant
The distinction between tenant and guest can have legal implications. If there is a rent agreement, the adult child may be considered a tenant, granting them legal rights under landlord-tenant laws, 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. This might complicate matters if the parents pass away and the estate plan dictates selling the home.
Eviction could become an issue if the adult child cannot afford to move elsewhere. 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. This could lead to family strife, especially if the executor is a sibling.
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 in their estate plan instead of making them a joint owner and transferring the home to them via a contractual right of survivorship. Leaving the house to a live-in child raises different questions:
- Does the live-in child have siblings?
- If they do have siblings, would the live-at-home child need to buy out their siblings’ interest?
- Can they afford the associated costs of home ownership?
Even if they can buy out their siblings, home ownership involves hidden costs beyond mortgage payments. Someone 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 might opt to leave other assets to offset the value of the home, ensuring fair treatment of all children. However, the live-in child would still need to handle the financial responsibilities of home ownership. 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.
Alternatively, 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 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.
Every Family Is Different. Create an Estate Plan That Fits Yours.
Multigenerational living is making a comeback, and the stigma is fading. However, these arrangements can present potential difficulties now and in the future. Parents should recognize that “fair treatment” might look different for each child. An adult child facing financial challenges might require special attention in an estate plan, while a child providing care might deserve compensation. 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.
[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.
