Dependent adult children, estate planning
Some adult children live with their parents. Perhaps they returned home after a divorce, the loss of a job, due to a disability, and perhaps they never left. Often the parents provide free rent and utilities and even food and money to cover transportation and insurance. The children may take care of household chores. What happens when the parents are incapacitated or die? Let us presume the parents have a living trust and durable powers of attorney to manage their assets.
If the parents become incapacitated but remain at home, the trust may expressly allow the children to live rent free as before. This presumes that the parents' estate can afford to cover the expenses, including the additional expenses due to parents' incapacity.
The dependent children may need to pay some or all the household expenses. Also, it may be necessary either to sell the house or at to borrow against the equity. The trust should address these issues.
Typically, the parents' trust says what happens if the incapacitated parents are no longer living at home because they live permanently at an assisted living or skilled nursing facility. Is the residence sold or maintained for the benefit of the dependent children? The possibilities vary with the circumstances. If the residence is sold, the trust may give the children time to relocate, and maybe, some cash to avoid problems and disagreements.
How are the sale proceeds used? Will the trust also assist the dependent children or must they wait till the parents die. Ultimately, when the parents die their trust will say how the estate is divided amongst the children, whether inheritances are distributed outright, are held in further trust, or used otherwise.
No one size fits all.
Some parents feel that they need to leave more money to take care of dependent adult children who are unable to provide for themselves, especially disabled adult children. A special needs trust may be in order.
Sometimes the family home remains in trust to assist the children. The trust should say how the real property taxes, insurance, repairs, maintenance, and utilities are to be paid. Perhaps the parents may leave assets to pay some or all of such expenses. The children may need to pay some or all these expenses, sooner or later. If the household related expenses cannot be paid the residence will have to be sold and the proceeds divided amongst the children, either equally or unequally, and again, either distributed outright or in further trust.
Holding assets in further trust may be necessary to protect children due to their inability to properly manage assets, due to their unpaid debts (creditor problems), due to predators, or due to the fact that they receive needs-based government benefits that may be lost unless the inheritance is placed into a special needs trust, as relevant.
Finally, parents with disabled children are often concerned about what happens to their dependent children after the parents die. Estate planning offers parents an opportunity to avoid unintended consequences and lessen the severity of what their dependent children will experience. It also gives the parents some peace of mind knowing that they have their affairs in order.
The foregoing discussion is not legal advice. Consult a qualified attorney for guidance. Dennis A. Fordham, attorney, is a State BarCertified 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.