Because of the high cost of real estate parents are now considering buying homes with their adult children. The intention is often that the children will live in the main house with their family and the parents will reside in a suite for the remainder of their lives.
The arrangement can work very well because it allows the adult children to buy a house which they may not otherwise have been able to afford. It can also facilitate the parents being able to assist their children with daycare.
There are however several problems which can arise, for example:
- What happens if the children divorce
- Will the parents pay rent or share in any of the household expenses such as utilities
- Who will pay the property taxes and insurance
- Do the parents own part of the home or are they merely tenants
- What happens when one or both of the parents die
- Will the title of the home be registered as Tenants in Common or Joint Tenants
All of these issues need to be addressed before the home is purchased. The parties can enter into a co-ownership agreement and/or a tenancy agreement which clearly sets out everyone’s expectations and rights. It is also important for all parties to revise their wills to be consistent with the co-ownership agreement and some or all of the parties may want to enter into marriage agreements to address what happens in the event of a separation or divorce.
If parents are simply giving their children money to help them purchase a home the parties need to document whether or not this money is a gift or a loan and to create legal documents which set out the terms of the arrangement. Will the children grant their parents a second mortgage to secure the loan? Will they sign a promissory note? If the money is a gift, is it a gift only to their child or is it a gift to both their child and their spouse?
All of these issues need to be addressed in legal documents in order to minimize problems that can arise in the future.
Deborah A. Todd