How to Leverage A Senior’s Home To Pay For Assisted Living
It’s not an easy decision to make. However, when an aging family member’s health and safety are suffering at home, assisted living is the right choice. In assisted living, your aging loved one will get the help they need to care for themselves while maintaining enough independence to enjoy their senior years.
Even when assisted living is the best move, many families struggle to afford it. After touring assisted living facilities and choosing the atmosphere and amenities (prepared meals, common areas, etc.) that would help their loved one daily while allowing them to have an independent lifestyle, families are hit with a harsh reality: Assisted living in Phoenix can cost as much as $7,025 per month. Even at the low end of $1,800 a month, assisted living is costly. When Social Security payments and retirement savings aren’t enough to cover monthly fees, many families dip into their own pockets to pay. However, there may be another option.
Take Out A Reverse Mortgage
A reverse mortgage, or Home Equity Conversion Mortgage (HECM), is a loan against a home’s equity that’s paid out as a lump sum or installments. As long as one borrower remains living in the home, the loan doesn’t need to be repaid. It’s a good option for seniors who have a large amount of equity in their home and want to pay for in-home care or move one spouse into assisted living while the other remains at home. If the spouse at home also needs care or passes away, the home can be sold to repay the loan and any remaining proceeds used to fund the surviving spouse’s care. However, reverse mortgages do come with high closing costs among other downsides.
Rent Out The Property
If a single senior or both halves of a married couple are moving to assisted living, a reverse mortgage isn’t an option. If passing down the family home is important to your loved one, consider renting out the property until they pass. Renting provides a steady income source to help pay for assisted living and avoids the capital gains tax implications of gifting a home rather than bequeathing it. However, seniors will need to continue paying property taxes and repairs and hire rental property managers, reducing the net income they receive from the property. If they ultimately decide to sell and haven’t lived in the home for several years, they’ll also lose the capital gains tax exemption.
Sell The Home
If leaving the home to heirs isn’t a priority, sell! Selling lets seniors cash in on the equity they’ve built in their home without the complications of reverse mortgages or rental agreements. Rather than saving the proceeds of a home sale, your family member can reinvest them into bonds and annuities. With annual yields around 4-6%, a $200,000 investment could generate $8,000-$12,000 per year in additional income. Paired with property tax savings, selling can put a sizable amount of money back into seniors’ wallets. However, problems arise when a senior needs money to move into assisted living quickly but their home is still on the market. If your loved one is in this situation, look into a bridge loan.
Beware Of Property Transfers
Some seniors don’t need to tap their home equity; they simply don’t want the hassle of home ownership. If your loved one is thinking of deeding the home over the family, encourage them to think twice. Since a property’s tax basis is only stepped up when it’s sold or inherited, not gifted, their heirs may be on the hook for a large capital gains tax bill if they ever sell. In most cases, it’s best to transfer property upon death and not before. To avoid the ongoing costs of homeownership, consider selling instead.
The decision to move to assisted living is often a sudden one. If your family is faced with an unexpected move and scrambling to decide what to do with the house, schedule a consultation with a real estate agent. After discussing what your property is worth and what it would take to get it ready to sell, you’ll have the information you need to decide if selling is the right call.
Article Courtesy Of: Rhonda Underhill – rhonda@getwellderly.com
