Boomerang Parents: An Investment in Caring

Prepare for the new phenomenon of boomerang parents. Unlike boomerang kids, who often return to the family home because of student loans or lack of quality work, elderly parents are choosing multi-generational housing mainly to be close to family. At the same time, retirement in Canada is particularly appealing.

Destinations such as Arizona and Florida have traditionally been popular with retirees, however; in recent years, the unfavourable Canadian-U.S. exchange rate has made travel much more expensive. In just over two years, from 2013 to 2015, the Canadian dollar lost 25% of its value. The last time the Canadian dollar was valued higher than the U.S. dollar was on February 4, 2013 (at $1.0007). Compare that to just $0.7485 as of November 27, 2015.

Health insurance is another key factor.  As people age, they generally have more health problems. A serious issue such as a heart attack can lead to steep increases in out-of-country insurance premiums.

Under the 2011 perimeter security pact, Canada and the United States agreed to set up co-ordinated systems to track entry and exit information from travellers and as of late 2015, they have begun enforcing it. According to a Canadian Press report dated October 27, 2015, Canada Revenue Agency and Employment and Social Development Canada expect to save between $194-million and $319-million over five years by reducing benefits paid to Canadians who are out of the country for more than 182 days per year.  There is certainly a financial incentive to remaining in Canada most of the year.

Boomerang parents can enjoy many other benefits with multi-generational housing.

Social:

-          Elderly parents can interact daily with children and grandchildren

-          Families can shares meals

Cost savings:

-          Split utilities, property taxes and maintenance costs

-          Share a vehicle rather than each party buying, insuring and maintaining a vehicle

-          One large home typically costs less than buying two smaller ones

-          Compared to parents living in a condo and an adult child living in a condo, maintaining one residence is less expensive than two sets of strata fees.

Children Assist Parents:

-          Provide support during illness or injury

-          Children are there to assist parents with tasks such as lawn moving and shopping

-          The parents can go south for the winter knowing the home is in safe hands

Assistance for Children

Over the past 25 years, wages have not kept up with the cost of living, including housing, which makes it difficult for younger generations to have the quality of life their parents enjoyed. Purchasing a home with parents allows children to get a foot up on the economic ladder in a variety of ways.

Building equity:

-         Depending on where they live in Canada, many young people cannot afford a house (or farm) on their own, which is unfortunate as these properties typically increase in value to a greater degree than condos or townhouses. This is because the landownership in the case of freehold property is 100 percent. With the assistance of parents, young people can enjoy the benefits of this investment.

-         If a house is financially out of reach or undesirable, purchasing a condo and townhouse certainly still offers the benefit of building equity.

-         Owning rather than renting also offers grandchildren a stable home environment.

Inheritance Savings

-         By purchasing a home together—with both parties on the property title from the beginning—children can avoid inheritance tax on the portion of money their parents invested in the property.

-         To avoid legal issues and hurt feelings when there are other siblings, it is important to be fair and to put everything in writing. For example, the parent can note in their will or on a separate notarized document that their contribution to the property is a portion of that child’s inheritance.

-         Typically it is wise if the parent’s contribution to the property does not exceed that child’s inheritance. Consider for example that a parent has two children and a total, personal worth of $400,000.  If the parent puts $225,000 into a house, the child who becomes the full owner upon the parent’s death would need to compensate their brother or sister $25,000.

Plan for Success

Living with family is not without its challenges! One of the best ways to avoid misunderstandings is to discuss expectations in advance then create a formal document that outlines each party’s rights and responsibilities such as:

-         Who will do the physical work of lawn and garden maintenance?

-         Who will pay for lawn and garden equipment and supplies?

-         Who does the cleaning?

-         How to divide the costs of repairing the roof, paying for a new furnace, etc.?

As much as we cherish family, the reality is that everyone needs some space and privacy. A house with a separate suite or a carriage house is often the best arrangement for long-term success.