My first thought was that if you preferred to stay in your current house, your better option would be a reverse mortgage which would eliminate the required payment on your existing mortgage. While the loan balance on a reverse mortgage would be slightly higher,  the reverse mortgage would have no required monthly payment.

Unfortunately, I found that at your ages, your loan balance is a little too high to qualify. My estimate is that you would probably qualify in 2 years because your loan balance will be a little lower at that time, and you will be 2 years older. But you may not want to wait, so let me turn to the option you have been offered.

But there is another way to do it that does not require you to trust someone who is not yet part of the family. This would involve having the ADU built first, with the transfer of ownership of your existing house not occurring until after the ADU has been completed to your satisfaction. This flips the power to abuse from him to you. He has to trust you not to make unreasonable demands that raise the cost of building the ADU and delay the transfer of ownership.

Doing it this way has the disadvantage for you that you don’t get out from under the burdensome mortgage payment until the deal is done and the mortgage is paid off. But this gives you an incentive to get the deal done quickly. Doing it his way provides an incentive for him to drag out the process because he gets your home equity upfront. Bottom line, he has a much better reason to trust you than you have to trust him.