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Coming out after FIL has passed, with basically no money left, just is what it is. what does his will state? Probably that son and family will get everything.
The pension/SS funds should stop at death. That isn't OK, but honestly, I probably wouldn't fight this battle.
Even if FIL was in the hospital or in a facility the pension and other assets were being used to maintain a house that FIL may have returned to.
IF they used his assets AFTER FIL died then that is not appropriate. (It would not be "elder financial abuse" though)
Once FIL died then whoever is taking care of the estate should inform the son and anyone else living in the house that the would be responsible for any bills. The person taking care of the estate would inform all utilities that the person has died and final payment would be made and if the son and grandkids are to remain in the house utilities would be put in their name.
If someone is inheriting the house utilities could be put in their name and if it is different than the son the person that now owns the house needs to either work out a rental agreement or start eviction.
I would say that this mutual agreement worked out well for both parties. And Dad died having used up all his funds, but not penniless. It sounds like lucky circumstances to ME. It sounds IDEAL to me, but then I am assuming this was their agreement, and they took joy from having one another in their lives.
Did your FIL live in his house too? How confident is your spouse in their assessment of their father’s cognitive abilities and care needs?
Many elders want to age in place and it is not unusual for them to spend down their assets in order to do so. It is also not uncommon for an adult child to move in and offer companionship and assistance with driving, etc. in lieu of rent.
Likely water under the bridge since he is deceased.