My best friend is retiring in January, selling her home in CA and moving to NM. We are going to combine households, living in my home, which is paid for. We plan on doing a lot of remodeling and yard improvements. We are trying to figure out how to write up some sort of legal agreement so that the investment in my property will also benefit my friend. My only child will inherit my home upon my death. What would be the best way to figure out a monetary compensation for my friend so that when we are both gone, her heir will get a portion of her sweat equity invested in my asset?

What other issues should we be considering when combining households?

Thanks!

You could have your will worded to will her a percent of the equity in the home at your time of death.

Your heir could then decide to either buy her out or sell and give her her percentage.

A decent lawyer will help you in this. Its not that common so might require a professional to ensure it is worded properly. There are probably also issues with taxes and such which is why it is probably worth a professional's fee.