Families Living Together – How To Do It
As seniors live longer and adult children struggle to find a way to care for them without traveling long distances, a phenomenon is sweeping the country. Parents and children are buying homes together.
The “why” is easy. Parents, sometimes flush with cash from sale of their own home, might choose to live with family. A son or daughter and spouse might see the opportunity to upgrade to a better house by combining resources. On the other hand, the main issue could be security, the certain knowledge that Mom or Dad or both are close by so that, if medical emergency strikes, an adult child is there to help.
The “how” of buying a property and living together in it takes planning. Packing, timing the sales, real estate settlements, and moves from both households, and the moves in to the new property are part of the challenge. But the job does not end there. The legal issues involved in funding, titling, gifting, mortgages and indemnifications should not be handled without specialized expert help. All of these matters have legal implications that are challenging, although not insurmountable.
Here is some background.
Funding. In my experience, it seems always to be the case that one home sells months earlier than the other. Often Mom and Dad’s house sells first leaving them with more available cash to make the downpayment on the new property than the adult son or daughter and his or her family.
If Mom and Dad contribute an unequal share to the purchase and then are equally responsible on the mortgage on the new property, this could be interpreted as “gifting” to the adult child and could interfere with Mom and Dad’s ability to qualify for Medicaid at a later date if needed for the cost of their care. There are, however, ways to handle this common problem. Careful attention to titling along with a Family Agreement and indemnifications, where necessary, can clarify the relationship and resolve the concerns. More of this below.
Titling. The two common forms of joint ownership for buyers other than husband and wife are tenants in common and joint tenants with right of survivorship. When two couples are purchasing, the ownership could be tenancy by the entireties as between husband and wife for their half and joint tenants with right of survivorship as between the two couples. For reasons that would take too long to explain, tenants in common would likely not work well with this kind of transaction. Families need to understand the difference and the Deed needs to be properly titled.
The Mortgage. Because the younger couple often has the higher steady income, there is often the spoken or unspoken assumption that they will be paying the mortgage. This is what could make the deal not a “gift” for Medicaid purposes. In exchange for the initial downpayment and expenses paid by Mom and Dad, the mortgage is handled primarily by Son and Daughter-In-Law. This solution to the Medicaid issue would likely not be clear unless covered either by a Family Agreement or by an indemnification on the mortgage or, ideally, by both.
The Family Agreement. A Family Agreement can explain, among other things, the reasons for the transactions, who is primarily responsible for which expenses, how utilities and household expenses are shared, how long and under what conditions people live in the house, and how proceeds of a later sale of the new property should be distributed.
A Family Agreement can resolve questions that would not be resolved by titling alone. If Mom and Dad put everything they owned into the purchase of the new house, for instance, then a Family Agreement could state, as one possibility, that on the resale of the property, their other adult children who did not live in the house would share in the proceeds of the sale. Or, alternatively, the Agreement might state that everything would go to the child with whom they live and his family. This is why, ideally, as many family members as possible are involved in making these Agreements so that they describe the understandings of the family overall.
A Family Agreement is more than a document regarding Medicaid. It also covers other property and inheritance issues.
Indemnifications. An indemnification, simply stated, is a promise to assume primary responsibility for payment such as payment on the mortgage. It can be used as one additional tool to resolve issues associated with financing a new property and living together.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.