The life estate is created after the fact with the help of a Real Estate Attorney.
The other option is an Illinois Land Trust in which the children are trustees. (also created with the help of an attorney) We have seen these becoming more common as well and they can be financed suvccessfully as I have also seen.
I would say the answer to your question is yes. I would consult with an attorney first to make sure that they agree. but you can. the other option is when dad is working again he buys the house back from the kids.
You mention dad had been making payments for 30+ years. Is dad nearing retirement or getting any type of pension? That can factor into his income.
Tenacy in Common can be any number of people. Each may hold different percentages of ownership in the property (depending on their contribution to the purchase price) A tennant in common's interest may be transfered or inherited. (In which the heir receives the interest in the property. Which means it can be transfered to the Grandchildren at some point in the future.
Couple of questions, do they own it free and clear of a mortgage?
I would recommend, not that I'm your attorney or accountant, that they gift the home to the children, as they are entitled to a 1,000,000 lifetime gift, that way avoiding capital gains and taxes. The children could then take out an equity loan or a mortgage to pay for the folks. But check with your attorney and accountant.
Best of luck.