After decades of establishing separate and independent households, U.S. families are increasingly opting for togetherness. A Pew Research Center analysis of census data found that in 2016 a record 64 million people—20 percent of the U.S. population—lived in multigenerational homes. That number is expected to keep rising.
What does this trend look like? In some cases, it’s grown children moving in with mom and dad in order to make ends meet while paying off student loans. In others, it may be grandparents recruited to provide childcare. And in a growing number of cases, adult children are reworking their housing arrangements to accommodate the needs of aging parents.
One has only to look around my neighborhood in Newton, Mass., to see the change. Just down the street, a couple has bought a house across from the husband’s parents. One nearby couple has already added an apartment to their Tudor home while the family next door is adding a carriage house apartment for their parents. And we ourselves recently bought a house with my parents and are now in the process of remodeling it to create two separate but connected living spaces.
Until recently, many towns and cities restricted the creation of a second living space within a home, fearing the erosion of neighborhoods and property values. Pressures created by rising real estate prices, housing shortages and demographics, however, have many rethinking the issue. Newton, for example, recently relaxed its zoning laws, making it easier to create “accessory apartments” such as those designed for parents or grandparents.
Newton is not alone. In cities ranging from Washington D.C. to Portland, Ore., local governments are addressing these issues by removing obstacles to accessory apartments. California, for example, relaxed its regulations in 2017. One result: In Los Angeles, the number of permits issued for accessory apartment units jumped to almost 2,000 in 2017 from just 142 the year earlier.
Good planning is critical to the success of these arrangements and to make sure all family members feel respected and included. As an estate planner, I am well aware of the multigenerational estate, tax and financial planning issues that can arise. Thought must be given to who should own the real estate and if title should be taken jointly, in trust, a family partnership, or otherwise. Does an interfamily loan make sense? Will lifetime gifting reduce estate taxes at the expense of capital gains taxes for the children in the future? Are there sufficient assets in the parents’ estate to pay any estate taxes and also provide for other beneficiaries? How does the real estate fit into the context of the overall estate plan and is the plan fair to all the heirs? These helped me address important questions early in the planning process.
Our project, now under construction, will include a separate wing for my parents, connected to our living room by a set of French doors that can be left open or be closed for privacy. Their space will have a living room, master bedroom, bathroom and galley kitchen—all on one floor and with a separate entrance. Most importantly, this new housing arrangement will bring us peace of mind.
How did we navigate the decision-making process? We are a family of planners. Our concern wasn’t financial or even the challenge of finding adequate care as my parents age. My mother, a former CEO of a continuing care retirement facility in Connecticut, has long been well aware of the issues that come with aging. She made sure they had good long-term care insurance, which they will use if they find they need care in coming years.
Estate planning conversations were an important part of the planning. Since we would be owning the home jointly with my parents—now age 69 and 71—the family had to think about how the property would pass to the next generation. Special consideration needed to be given to the inheritance that would go to my brother to make sure that there would be no hard feelings.
The key question, however, was what quality of life did we want for ourselves and for my parents as they aged. We weighed the pros and the cons, and found the advantages far outweighed any potential inconveniences. Our new multigenerational housing will improve the quality of our family time together and deepen our family connections. Moreover, pooling our resources gave us more buying power in a hot real estate market where prices are among the highest in the country.
For some, multigenerational housing provides just too much togetherness. There are, however, other creative ways of addressing these intergenerational concerns. One example: The couple that purchased a nearby condo in anticipation of their parents’ future needs. Until the parents are ready to move, the unit is being rented to produce some additional income. And there are countless adult children who take over the large homes where they were raised when parents downsize to one-floor living or smaller quarters during retirement. One family I know is considering renovation of the parents’ large Victorian home for the daughter and her family with a separate apartment for the parents to age in place.
As I talk about my own project with both clients and friends I realize that my family is not alone in our desire to bring extended families together. Many of us watched our parents try to assist our grandparents from a distance and we’re now in dual-income households with children. While we balance the needs of work and children, we’re mindful of the needs of our parents as they age. Given the demands on our busy schedules we’re placing a premium on the convenience of having our parents nearby and appreciate the benefits of closer family relationships.
I encourage my clients who are managing multigenerational estate planning issues to discuss options early and often. While income and estate tax efficiency is important, personal goals must be balanced appropriately to develop the best family plan.
Kristin Wildman Shirahama is a partner in Bowditch & Dewey LLP’s Estate, Tax and Financial Planning practice in Massachusetts. The practice is ranked nationally by U.S. News and World Report: Best Lawyers “Best Law Firms.”
