Ten essential insights into multi-generational living

The trend of multi-generational living is increasing, and for good reason – it offers benefits like cost-free childcare, shared household costs, daily interaction with grandchildren, and ease of caring for ageing parents. The perks for all family members are quite evident. However, there is considerable potential for such setups to face challenges.

Here are ten crucial aspects you should be aware of regarding multi-generational living, to help you steer clear of potential issues.

No automatic rights

Just as there is no such thing as a ‘common law spouse’, there are equally no automatic rights for multi-generational families who opt to cohabit or possess joint property interests. Consequently, if a disagreement regarding the property emerges, it will ultimately fall to be determined by a court under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).

Buying the property

Once an appropriate property has been selected, consideration must be given to the financing of the purchase and the name(s) under which the property will be registered. It is not unusual for funds to be pooled to fund the purchase. In such cases, it is important to record the intended beneficial ownership of the new property in a Declaration of Trust. A Declaration of Trust is a document that sets out each owner’s respective ownership percentage, the extent of their mortgage contributions (if any) and what should happen in the event the property is sold. From an estate planning perspective, it may be appropriate to use a trust structure (during lifetime or via a Will) to ring-fence part of a property, which can provide a valuable mechanism of asset protection. Depending on your personal circumstances and how the property is owned, there may well be tax consequences that should be taken into account and specific advice should be sought. All owners are strongly encouraged to have a Will in place to stipulate what should happen in the event of an owner’s death, to prevent any unintended consequences occurring.  

Renovation works

When parents plan to move in with their adult child (potentially alongside their son/daughter-in-law and grandchildren) into a property that is already owned by the child, it is wise to discuss whether the parents are intended to have any interest in the property. Will the property remain solely in the child’s name? What if modifications are required to the property suitable for shared living? For instance, will it be necessary to construct an extension or separate ‘granny flat’? If so, who will bear the cost of these works? If the parents are downsizing and have funds available to finance such modifications, it is important to clarify the nature of these payments. Without open dialogue and a written agreement, there is a significant potential for disagreements over the intentions of each party regarding the renovations. For example, whether the parents intended to invest in the property (and thus share in the beneficial interest), or whether it was a loan or a gift.

Mortgage liability

If the parents are intended to have a beneficial interest in the property, will their share be calculated gross or net of any mortgage? In a previous case, we asserted, on behalf of the parent, that not only did the parent hold a significant beneficial interest in the property, but that this interest should be calculated gross of the mortgage. In simple terms, our client was entitled to a percentage of the property’s value before any mortgage deduction was applied. This was in line with a legal doctrine known as the ‘equity of exoneration’. Our client had not benefitted from the monies raised under the mortgage, and therefore, it was successfully contended that her interest should not be burdened by this debt.

Payment of shared living expenses

Living in a multi-generational household can often lead to savings in living expenses for all involved. This is mainly due to sharing the costs of gas, electricity, council tax, insurance, broadband, television subscriptions, and so forth. To ensure everyone is on the same page, agreement should be sought on which specific expenses will be shared and how these costs will be divided. For instance, should the parents chip in for the Netflix subscription if they don’t use it? Should the adult children contribute equally to the heating costs if the parents prefer a warmer home? How does the presence of grandchildren influence these calculations?

Going separate ways

What happens if one of the parties wishes to relocate and live elsewhere? How will their portion of the equity (if any) be liquidated? Did the parents assume that this property would be their permanent residence? How will they manage the transition, particularly if they are frail or in ill-health? Will they be able to afford alternative accommodation? Even if their share in the equity is released, will this be sufficient to buy suitable alternative accommodation? We regularly advise clients on the legal claims that can arise in these situations. Typically, such claims revolve around the legal concept of ‘proprietary estoppel’.  In a proprietary estoppel claim, a party may be barred from selling the property or evicting the other party, if to do so would contradict any assurances or promises made that the other party relied on to their disadvantage. For instance, if a child invites their parent to live with them, promising it to be their ‘forever home’, and the parent sells their home and uses the proceeds to build an extension to the child’s home, the child may later be barred from breaking their promise and evicting the parent.

The court’s broad discretion

Even where a party is barred (‘estopped’) from reneging on the kind of promises mentioned above, the remedy awarded by a court might not be adequate. If a person successfully brings a proprietary estoppel claim, the court will then determine the appropriate remedy. The court has broad and discretionary powers in awarding such remedies. The outcome of a proprietary estoppel claim will largely depend on the specific facts of the case and the context. A judge might, for example, order a monetary payment, which may or may not be sufficient to meet rehousing needs. The general approach is that the court will seek to give effect to the promise (or order a monetary payment of equivalent value), but if doing so would be disproportionate to the harm suffered by the claimant, the court has the right to grant a more limited relief.

Divorce proceedings

The situation can become complex when an adult child separates from their partner.  In the process of asset division during a divorce, it is crucial to identify what assets fall within the matrimonial “pot” to be divided in the divorce, and what assets lie outside of it. Disagreements can arise in this area, particularly when the details of multi-generational living arrangements are ambiguous. If a parent claims a beneficial interest in the family home, they might need to be included as a third-party participant (an “intervener”) in the matrimonial court proceedings. This will ensure their beneficial interest is considered during asset division in the divorce. For further information on intervener claims, please see our earlier article ‘What to do if a third party claims to have interest in your property when you divorce’.

Care home fees

The possible costs of care can be unsettling, particularly the effect this may have on your retirement planning and wealth you may like to pass on to others. Your exposure to care fees will depend on the extent and type of assets you own. As such, these should be reviewed to ascertain the impact of possible future care fees and the options available to you, particularly in relation to any co-owned property. A Lasting Power of Attorney is a document that can be used if an owner loses capacity and enables another person to make decisions concerning your 1) health and welfare and 2) property and financial affairs. These can be particularly useful if a co-owner is no longer able to manage their own affairs.   

Cohabitation Agreements

Many of the issues mentioned above can be circumvented if the parties document their intentions in a written Cohabitation Agreement. A Cohabitation Agreement is a legal contract between individuals who are living together but are not married or in a civil partnership. Such agreements are not limited to romantic couples and can be utilised by friends, siblings, or housemates. The main purpose of a Cohabitation Agreement is to clarify everybody’s rights and responsibilities related to their communal living situation. It can cover, for instance, how household bills are paid and what should happen if the parties decide to go their separate ways. It is important to note that, for an agreement to be valid, it must have been entered into freely and voluntarily, and it’s best if it’s documented as a deed. Each person needs to sign it, and it needs to be kept up to date to reflect any major life changes. Each person should seek independent legal advice to ensure they comprehend and are satisfied with the agreement.

Our Home Ownership Disputes Team specialises in drafting Cohabitation Agreements and resolving disputes under TOLATA.

Our Private Client Advisory Team specialises in Wills, Lasting Powers of Attorney, and Trusts and can prepare bespoke documents to formally record your family agreements.

To discuss your needs and receive a no-obligation quote, contact Birketts today. We would be delighted to see how we can help you.