Protect your Occupants with Documents

Child moves into parent’s home with his family, with no lease, no written agreement. Stays there for decades and at some point, the parent dies.What rights do they have, and what obligations?  Aging parent moves into child’s home, perhaps a “mother-daughter” structure or perhaps using a bedroom within the main part of the house, with an informal arrangement for sharing expenses. What rights does she have, and what obligations? Will Medicaid try to treat her contributions for household expenses as “gifts to the child,” resulting in a transfer penalty and denial of benefits?

We all know about these arrangements. There may or may not be other children who are affected by the situation. A recent unpublished Appellate Division case called Graber v. Romano ( App. Div. 38-2-5858) highlights the problems that are created when there are no formal documented arrangements:

Pauline Romano owned her home and allowed her son Lawrence, daughter-in-law Cindy, and their children to move in with them in approximately 1987, without any written or even oral lease. Lawrence Romano died in 2005. At some point, Mrs. Romano transferred title to her home to a different daughter, Maria. Mrs. Romano died in 2012 and Cindy & her daughter Julia just stayed there without paying any rent.  This eventually lead to a suit by Maria — who was the owner of the property now — to eject Cindy and Julia from the premises so that the property could be sold. They didn’t move out, and appealed the order. The Appellate Division affirmed the ejectment and also ordered the case remanded to calculate their fair market rent retroactive to December 8, 2011.

The owner of real estate has the right to rent out all or part of his property and collect an agreed-upon rent. The owner retains the legal obligation to make sure the taxes, insurance, and water/sewer get paid, and that the property is maintained in a habitable obligation. The tenant then acquires rights to continued occupancy based on the terms of the lease. Generally, the lease only lasts as long as the owner still owns the property – subsequent owners have the right to choose whether to retain a tenant, and can re-negotiate a lease, or ask them to move out by a certain date.For more on tenant-landlord relationships see the NJ Department of Community Affairs website.

When the property owner dies, the property is owned by the Estate unless it was already jointly owned in some fashion with another person (in which case it now may belong to them). The Executor of the Estate has obligations to marshall the assets, pay all the bills and taxes, and then divide up the assets and distribute them according to the Will or according to law of intestacy if there is no Will. The house may need to be sold. So the child now has a new relationship as a tenant of the Estate,  often with a brother or sister (the Executor) as the landlord. Sometimes the lease or the Will has instructions of what rights the tenant retains at that point. However, if there was never any formal agreement as to a lease, the child may be merely an at-will occupant who lived there with the tacit consent of the parent.

Over the years, my clients have explained their reasons for not creating a document to formalize  the inter-family legal relationships. They didn’t like the feel of a formal arrangement. They didn’t want to get a lawyer involved. They wanted to just keep it a private affair. They had a “verbal” agreement to help out Dad in exchange for no rent. They couldn’t bear to think of death or divorce. And so on. Unfortunately, the minute anything happens to change the situation, it’s no longer a private matter. Other people get involved, whether that’s the rest of the heirs or the Medicaid agency that is doing its 5 year lookback or insisting that a property be listed for sale. If someone else becomes the legal guardian of the parent, they may not allow this child to remain in the house. Or they may insist that s/he start paying a fixed monthly rent. If the parent dies, the child’s previous permission to live there could end, regardless of whether expenses are being paid. And if the parent is living in the child’s house, and the child gets divorced or passes away, the parent’s right to remain in those premises will likely be uncertain at best.

I suggest that families in these situations create documents that confirm their obligations and their rights, even though this means you have to “think about the unthinkable.” Run a budget to see the average monthly cost of the house over the prior year – include everything such as all utilities, cable, taxes, cleaning and maintenance. Fix a method for sharing of expenses. Consider having  the occupant pay rent, like a tenant would. Consider paying  the recurring bills with 2 checks/payments, one from the parent and one from the child, split pro rata based on how many people are in the household. If the child has 4 people in her family, the parent would pay 1/5 or 20% and the homeowner would pay the rest.  Capital expenses would be the responsibility of the owner, although in commercial real estate transactions, some percentage of rent is designed to provide a profit that can then be used for such repairs when they arise. If a parent is paying rent to a child, keep in mind that Medicaid could look at whether it was a substantiated fair market rent, because excess rent could be treated as a gift to the child. Create an occupancy agreement which protects all the parties, and have the signatures witnesses by independent witnesses or notary. The homeowner can also put language into his/her Will to specify some protections. Each situation has to be addressed on an individual basis.

Unfortunately, verbal agreements can be difficult to enforce and only “worth the paper they’re written on.” Family and estate disputes involving these uncertain informal arrangements can be devastatingly costly. Careful planning can prevent a crisis. Formality at the start — like a prenuptial agreement — can prevent huge problems later.

For legal advice on elder care life planning and residential arrangements, call 732-382-6070



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