Yes. If your parent(s) will be paying any portion of their income or assets towards any household expenses (including utilities, water, rent, mortgage, homeowner’s association, insurance, etc.), all parties should enter into a written rental agreement. If your parents ever require any in-home care, assisted living, or skilled nursing, for which they may require the assistance of government benefits programs such as Arizona Long Term Care System (“ALTCS”), the existence of a rental agreement will prevent any payments made to the child for household expenses from being treated as an “uncompensated transfer” subject to penalty by ALTCS. Without a written rental agreement in place, the ALTCS program may treat payments made from the parent to the adult child as an uncompensated transfer or gift, and impose a penalty of a certain number of months before ALTCS will begin to pay for the long term care services.
Further, if any other interested parties or family members are concerned about payments being made from the parent to the adult child, the rental agreement provides written explanation for the purpose of each payment, and proof that payments are not meant to be considered a gift to the child. This can also avoid family disputes that can occur between siblings or other family members.
In reaching the agreement, the amount paid should not be for more than fair market rent value and it is best if the parent signs the rental agreement themselves, if capable. If the parent is not capable, his or her legal representative under valid financial power of attorney should sign for the parent. However, if the child to whom rent shall be paid is also the agent, a successor agent should act on behalf of the parent to avoid appearance of self-dealing.
If payments continue into the future when the parent may have diminished capacity, the child will be able to reference the terms of the valid agreement created and entered into while the parent was competent. If there is evidence a parent already suffers from diminished capacity, consult with an elder law attorney who can provide clear advice.
Often when an elderly parent moves in, major or minor remodeling may be needed to safely accommodate their current and future needs. An aging-in-place specialist may be needed to best modify the home. The agreement can also set forth the financial arrangement between the parties in connection with the costs of necessary remodeling costs.
Multigenerational living can be a great experience for the entire family. However, there are many factors to consider before the move, including but not limited to the financial commitment and arrangement. By having a written agreement in place, there is better chance of harmony.
A qualified elder law attorney can assist with the preparation of a valid rental or property agreement that will satisfy the requirements of ALTCS, and best fiduciary practices. A certified public accountant should be consulted regarding tax consequences of rent paid to the adult child. If your older parent is moving in with you, call our office to discuss your options.
-Megan Selvey, Esq.