A not uncommon estate planning scenario is an elderly parent who lives with an adult child, either at the parent(s)’s home or at the child’s home. This scenario requires more considered estate planning to protect the arrangement in the event of the parent’s incapacity (e.g., dementia) and what happens when the parent moves out (e.g., into a nursing home) or dies.

If the child cares for the parent at the parent’s home then the parent’s estate planning often permits the care giver child to remain at the parent’s residence, and perhaps to utilize the parent’s bank accounts, even if the parent were mentally incapacitated. If appropriate, that should be expressly provided. Otherwise, once the parent loses the mental capacity to permit the living arrangement and finances, unintended problems may arise; such as, potential disagreement between the care giver child and another family member. Allegations of elder abuse, especially regarding finances, may occur.

The agreed-upon terms of any living arrangement, including finances, should be included in the parent’s appropriate estate planning documents. If the parent has a living trust, then the trust may permit the child to remain in the residence and state the terms of the living arrangement. If the parent’s home is a rental property, however, then the parent’s power of attorney may authorize the child’s continued occupancy and continued use of parent’s money to pay the household expenses; the rental agreement also would need to include the child as a tenant.

Alternatively, if the parent lives in the child’s residence, the child’s estate plan similarly would need to say whether, and on what terms, the parent can remain in the child’s residence if the child were to become temporarily or permanently incapacitated. Moreover, consideration would need to be given to how the parents are cared for.

When the parent dies or moves out (e.g., moves into a nursing home) or when the child moves out, the arrangement ends. What happens then depends on the circumstances: (1) does the parent leave the residence to the adult care giver child; (2) how are the expenses (including mortgage) to be paid; and (3) is there an express transition period before the child moves-out.

If the parent intends to leave the residence to the adult care-giver child, then parent’s relevant estate planning documents need to gift the residence. That could include lifetime gifting if the parent moves out due to incapacity or it might entail renting the residence to provide income for the parent’s needs.

If the parent has other children, or a spouse from a second marriage, then the parent’s estate planning needs to say whether, and if so how, other family members participate in the residence. Perhaps the parent wants to gift the residence to all children subject to an exclusive life estate for the care-giver child to live in the residence. Once the caregiver child dies, the residence is typically sold and sale proceeds divided amongst the parent’s then living descendants.

If the care giver child is more favorably treated with respect to the parent’s residence, and perhaps other assets, then the parent should anticipate possible objections. While the parent is entitled to devise an estate plan of her own choosing, that does not itself prevent a disgruntled child from objecting at the parent’s incapacity or death; a possibility to be discussed and considered between the parent and the estate planning attorney.

Without appropriate and timely estate planning, however, a conservatorship may become necessary at the parent’s incapacity and a probate may become necessary at the parent’s death. Such expensive court supervised administrations, and their end results, may not necessarily agree with what the parent would have wanted if his or her affairs had been in order.
The foregoing is not legal advice. Consult an attorney for guidance.

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”