One of the biggest questions active adults ask before buying a home in a 55+ or age-restricted community is about inheritance. What happens after your children assume ownership of your house? Unfortunately, the answer is not straightforward.
The most important thing to do before purchasing a home in an age-restricted community is to check the homeowners’ association rules. Every community sets their own rules on ownership after inheritance, so first things first before considering a home are to check the community rules. Whether that’s you, your lawyer, or your realtor.
So, what are the most common rules on inheritance in 55+ communities? Two of the biggest rules you’ll come across even before discussing inheritance is the 80/20 rule and minimum age rule.
Explained in more detail here, the 80/20 rule effectively means 80% of households in a 55+ community must be occupied by someone over the age of 55. Every age-restricted community in the country must abide by this to keep their status. Homes in age-restricted communities very rarely include anyone under 55, but in case that happens, communities can allow those under 55 to stay as long as at least 80% of the other units are occupied by someone over 55. Having said that, many communities strive to keep their occupancy fully 55+.
Minimum Age Rule
Unlike the 80/20 rule, this one is set on a community-by-community basis. The minimum age requirement for a year-round resident is generally 18. However, this can vary. Some raise the limit to 21, some even higher. And others, like Holiday City at Monroe in New Jersey don't have any minimum age requirement. Even then, residents over the age requirement face certain restrictions.
I can speak from personal experience here. Several years ago my parents bought a home in Bridgewater by Del Webb in Michigan. At the time I was a 22-year old college student in another state and spent my summers with my parents.
In order to live just a few months of the year in that age-restricted community, my parents and I had to go through an extensive process that included signing a lot of paperwork. Still, I couldn’t use the community’s amenities without my parents being present. The main reason for this is insurance liabilities a community absorbs if children are using the shared amenities.
How do these rules apply to inheritance? The 80/20 rule is the most commonly applied in cases of inheritance. If you pass down your home to your children they can live in the home, provided less than 20% of homes in the community don’t have occupants over 55 and the community allows it.
Fortunately, it is almost unheard of for an age-restricted community to be at their 80/20 limit. This is where checking your community's rules becomes important. Even if a 55+ community isn't at its 80/20 limit, their rules still may require your children to sell the home.
Now comes the minimum age requirement. If the children who inherit your home have children of their own under a community’s minimum age requirement they would have to sell the house. For some, this is okay. Young families don’t often desire to live in a community designated for active adults, so selling the home is likely a plan already. Of course, if you buy a home in a community with no minimum age requirement your children are in luck.
What To Do
As stated above, do your due diligence. If you’re concerned about inheritance then know a community’s rules well before you even place a bid on a home. Besides abiding by the 80/20 rule, every community can do as they please when it comes to allowing an inheritor to live in the community. Ultimately, it should be comforting to know while your children may not be able to reside in your home, the investment you made will stay in the family.