Baby Boomers often have been called the sandwich generation because many find themselves looking after their older parents and their children at the same time.
Multi-generation households – those that include at least three generations of the same family – are the fastest growing type of households in Canada.
Latest figures from Statistics Canada show that multi-generational households grew the fastest by 37.5 per cent of all household types from 2001 to 2016, well above the 21.7 per cent rate of growth for all households during the same period. In 2016, 6.3 per cent of Canada’s population living in private households, or 2.2 million people, lived in a multi-generation household.
“A fact of life today is that many younger generation Canadians are taking a lot longer to leave home, often because they simply can’t afford to move out due to the high cost of housing,” says Christine Van Cauwenberghe, vice-president of tax and estate planning with Investors Group. “As well, we are seeing older parents moving in with their children. These situations can work out well but there can be complications.”
Many parents who are entering in or who already are in retirement still have children at home and may consider making them joint owners of their property. Van Cauwenberghe says parents should not do this unless they have a negotiated co-ownership agreement that specifically addresses what would happen in the event of certain situations such as death, divorce, disagreement and bankruptcy.
“In some cases parents will have a ‘call option’ which would allow them to buy the children out in the event that things don’t work out,” Van Cauwenberghe says.
In the event of the parent’s death, the agreement should indicate whether or not the child has the option to buy out the parent’s interest, possibly using their portion of the inheritance they will receive from the estate.
A lot will depend on the individual circumstances.
For example, if the parents and children co-own the property because they have made equal financial contributions then it may not be appropriate to dictate which side can buy out the other. In this case parents may prefer to have a “shot-gun” clause which will allow either party to make an offer to buy the other party’s interest but which allows the other party to use the purchase price offered and buy out the party who originally made the offer, at the same price.
“This is an incentive to ensure that the offer made is reasonable since the person making the offer never knows if they will be on the buying or selling end of the transaction,” Van Cauwenberghe says. “Either way the parties need to have an escape hatch.”