In our column this month, we have tackled the issue of empty nests and the range of emotions and financial adjustments that come with children leaving home.
But what do you do if your adult children do not want to leave or continually return home?
The balance of being supportive while not being taken advantage of is tricky, especially with those often referred to as “boomerang kids” — adult children who keep returning home.
The first question parents often ask when an adult child plans to stay home is, “Should we charge them rent?” This is usually followed with questions about responsibilities, like who will do their laundry and how they will be fed.
Before diving into these concerns, please take a minute to analyze why they are in your home and not on their own and then formulate a plan for them to leave the nest for good.
Understanding the why
Many valid financial reasons can prevent an adult child from leaving or cause them to return to the nest: pursuing further education to earn more, paying off student loan debts and medical expenses, or facing the high costs of childcare or rent relative to their current earning capacity.
When navigating the complexities of boomerang kids and their evolving financial needs, a financial planner can be an invaluable ally. They can help formulate comprehensive strategies to balance your and your child’s economic success. Furthermore, within a CFP’s practice, a junior associate might uniquely relate to your adult child’s situation and assist them with their plan.
Sometimes, the reason kids stay isn’t just about economics – it’s about emotional connections that are difficult to untangle. While being supportive of your young adult is honorable, and there are benefits to enjoying the family under one roof, co-dependency can unknowingly hold young adults back from fully embracing independence. Similarly, a lack of life skills, executive functioning, or being neurodivergent, like having ADHD or learning disabilities, might make independent living more challenging.
Basic tasks like budgeting, cooking meals, or maintaining a home that we take for granted as being easy might be difficult for some adult children. Are they not reaching their potential by working a low-paying dead-end job? Are their late nights out, bad habits, or addictions stunting their success?
Remember, this isn’t about assigning blame but acknowledging their realities and limitations. Recognizing these gaps presents an opportunity for growth for both the young adult and the family. Seeking the help of a behavioral therapist could be helpful.
Creating an exit plan
Once you understand their circumstances, it’s time to work together on a strategy for them to regain their independence.
Of course, the plan will be based on why they are still in your home. Perhaps instead of contributing rent, your young adult can set aside funds in a savings account to move out. The goal is to set a firm date for when they need to leave, for instance, on their 25th birthday or when they should be completing graduate school or their low-paying internship.
One of our clients bought a condo to downsize to, rented three moving vans for her three adult sons to fill with their stuff, and one fateful Saturday became the date all three drove off and became independent adults.
If you find yourself where you truly desire your own space, you might not have to move somewhere with no guest rooms. There are responsible ways to assist your adult children in establishing their household or, at least, shortening the time they are invading your space.
Making outright gifts
Remember when you worked your first job out of college, and it paid less than you expected? Offering financial assistance to make ends meet temporarily can give adult kids a measure of autonomy while showing your support. Figure out a workable budget, compute the monthly shortfall, and see if it is an amount you can afford to contribute.
While gifts are generally not taxable, filing a gift tax return is sometimes required and may impact your estate taxes if you have a high net worth. Paying their medical bills and tuition are exempt from the gift tax filing requirement. Ask your estate attorney or CPA for additional gift tax and exemption information.
Provide housing elsewhere
If you own additional properties, like rentals, you could allow them to live in one while they contribute towards the property expenses in the form of reduced rent. You can even arrange for them to own the property eventually. Again, be sure to discuss gift taxes with a tax professional.
Building a granny flat or garage apartment on your property for them to live in is an excellent example of an ADU (Accessory Dwelling Unit) that offers a balance of proximity and privacy. ADUs will be discussed in detail in next month’s column.
Helping buy a home
While the current real estate market might not be ideal for buying, providing a down payment for a home can significantly impact a young person’s long-term financial health. This is particularly valuable if the local real estate market is unaffordable, but you wish for them (and your grandchildren) to remain close.
One client helped her two adult sons and their children buy a house around the corner from their home. The parents gifted the down payment of about $100,000, so filing a gift tax return was required (but no gift taxes were owed).
While $100,000 seems like a significant investment, was it worth it? For the client, it will be the first time they have enjoyed their home to themselves in over 30 years, and yet, they can still see their grandchildren every day if they’d like.
Economic conditions, interest rates, and real estate market dynamics can impact the rent vs. own analysis. It’s advisable to consult with real estate and financial professionals to obtain the most up-to-date and accurate information for your situation.
Navigating the realm of boomerang kids is a journey that demands open conversations, empathy, and some financial savvy.
It is not just a matter of whether or not they are contributing to the utilities and food costs or if they are doing their share of the chores. By approaching the situation with a focus on understanding and responsible planning, you can have the satisfaction (and peace) of helping your adult child become financially stable and independent for the rest of their life.
Michelle C. Herting specializes in succession planning, business valuations, and settling trusts.
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