June 24, 2021

Should You Keep Your Parent's House After They Move to Senior Care

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One of the most common choices for aging adults seeking to fund senior living is to sell their house. According to a National Association of Realtors survey, people over the age of 55 accounted for more than half of all home sellers in 2019.

If a person has to transition out of their home into some form of long-term care, they may need to move anyway. Selling the house and using the money made on the sale to fund senior living is a fantastic way to help provide funds for that.

It was very common to encounter seniors who have sold their home to pay for treatment. Nonetheless, every family may face personal struggles as a result of this type of experience. Many seniors have lived in their homes for 25 years or more. This can be a difficult transition being away from a home that holds their memories.

Despite these strong emotions, selling a parent's home to pay for treatment can be an optimistic and easy experience. If you're selling a home to pay for assisted living, memory care, or nursing home care, you'll need to know what services you'll need, what to expect financially, and what steps to take.

When is it acceptable to sell your parents' home to pay for care?

Selling a home, whether you are a senior or a family member, can be a difficult decision. Many concerned, in particular, may have questions about preparation and timing. Should they sell the house before or after moving to a senior living facility?

It is important to look at the big picture. Why are they moving, how soon do they need to move and what preparations need to be made in advance?

Questions like these will help direct the process and create a timeline. It is advised that seniors and their families consider many main factors, including financial needs, any stress in the family, and timing.

The biggest reason to sell BEFORE moving into a senior living community:

Selling is the primary method by which the family expects to pay for treatment. If a home does not sell quickly, families face additional expenses such as mortgage payments, utility bills, insurance, and maintenance, in addition to senior living costs.

Reasons to sell AFTER relocating to a senior living facility include:

The condition is critical. Waiting may not be possible if you notice signs that your elderly parent is unable to live alone, or if they have been hospitalized after a fall or accident and cannot return home safely.

Your primary concern is stress management. Seniors who live in their home during the selling process must declutter on a regular basis. They often need a place to stay during showings.

You strive for perfect home staging. An empty house provides a real estate agent with a blank slate, which could appeal to more buyers.

Though each of these factors plays a role in determining when to sell, families must decide which to prioritize.

Bridge loans can help make the process of selling a home to pay for medical insurance more manageable.

Bridge loans, which are most widely used in real estate, are a short-term lending alternative designed to "bridge the gap" between homes. They allow buyers to tap into their home equity until the house is officially sold, freeing up funds to pay for assisted living in the meantime.

Seniors must have at least 20% equity in their home to qualify for a bridge loan. Though bridge loans are easy, their interest rates are higher than those of other forms of loans. In addition, the loan term is usually six to twelve months. Seniors and families should talk to their banker or financial advisor to see if a bridge loan is right for them.

What effect does selling your home have on VA benefits and Medicaid eligibility?

Seniors who receive government financial support, such as VA pensions, VA aid and attendance, or Medicaid, should carefully consider their choices and the possible consequences of selling their home. 

The following net worth and wealth limitations apply to the programs:

  • To receive VA benefits, Veterans must have a net worth of less than $130,773. This does not take into account the importance of a veteran's home. Selling a home to pay for treatment, on the other hand, will actually raise a veteran's net worth, making them ineligible.
  • Medicaid eligibility standards differ by state, but many states require that an individual have very low assets. Selling your parents' home to pay for treatment can cause them to lose Medicaid eligibility.

What taxes are owed if you sell your home?

Selling a home to pay for assisted living does not have to result in a significant tax bill. In reality, the proceeds from a home sale are always tax-free. According to the IRS, a person can deduct up to $250,000 in profit from the selling of a primary residence, whereas a married couple filing jointly can deduct up to $500,000 in profit. Seniors must fulfill two requirements:

  • They must be the owners of the house.
  • They must have lived in the house for at least two of the previous five years.

A checklist for selling a house to pay for senior care.

It is recommended that before listing, sellers should do the following:

  • Locate a reputable real estate agent.
  • Do your homework and know what to expect. Look at similar properties in your area to get a price estimate. Though it is not always mandatory, seniors can request that their real estate agent arrange for a home appraisal. An appraisal is a third-party professional opinion of a home's worth based on a visual inspection as well as industry trends. This consultation is not cheap — it usually costs several hundred dollars.
  • Consider decluttering and home improvements. It is advised that sellers provide a pre-inspection so that necessary modifications can be made and unnecessary issues can be avoided. A pre-inspection uncovers major safety and mechanical flaws that could jeopardize a sale.

Gathering required documentation can help to simplify the sale process.

Prior to listing a home for sale, seniors and their families should have access to:

  • The sales contract. This verifies who owns the house, when it was bought, and how much the current owner paid. This also includes any terms and conditions that were conveyed to the new owner prior to the purchase.
  • Documents pertaining to homeowner's insurance. Examine the insurance to see how long it would protect the house and property if you no longer live there. Insurance firms also consider a home to be empty after it has been unoccupied for 60 days. If your parent relocates before selling their home, the policy will become more expensive. Insurance companies charge up to three times higher for vacant home insurance due to the increased risk of burglary, vandalism, and burning.
  • Receipts for capital improvements and maintenance reports. Inquiring customers may like to know how recently the house was repaired. Furthermore, evidence of capital improvements, such as a new roof, driveway, or flooring, may assist sellers in commanding higher profits.
  • Bills for utilities. Past energy bills demonstrate that a seller is not behind on payments. They also give prospective buyers an idea of what their monthly costs would be.
  • Home evaluation. A skilled home valuation will convince buyers that a house's listed price is reasonable and comparable to other properties in the region.
  • Records from the Homeowners Association (HOA). HOA records show how much dues have risen in the past, educating customers about possible future costs.
  • Warranties. Simply put, warranties boost customer interest while also serving as an effective marketing tool for real estate agents. If a buyer is looking at several properties, the warranty or lack thereof can affect their decision.

When your parents have dementia, you may need to sell their home to pay for their care.

Memory loss complicates the sale of a home for seniors and their families. Unless otherwise stated in valid documents, only the homeowner has the authority to sell the home to a buyer. However, two legal designations — power of attorney and guardianship — may give adult children the authority to make decisions about their ailing parents.

Guardianship and power of attorney

A power of attorney (POA) may assist a trusted adult child or other family member in carrying out the wishes of a senior. Among the primary reasons families create this legal status are real estate decisions, such as selling a home to pay for treatment.

To establish power of attorney, the senior — or "principal" — must sign a document authorizing another person to make decisions on their behalf. Though power of attorney is often simple to create, there are many forms. An elder law attorney may have answers to specific questions and help to expedite the process.

Tips for how to deal with emotions when selling a parent’s home

Maintain transparency in the operation. Before a parent signs any contract, anyone involved in the sale process should read it. This reduces confusion and guarantees that everybody in the family is on the same page. 

Check to see if your real estate agent has a professional network. A senior real estate agent should be able to arrange an estate sale, recruit packers, and/or collaborate with a senior transfer manager, leaving the family with less responsibilities.

Highlight the advantages of senior living. Seniors will be anxious about moving, so discuss what they should anticipate, such as a friendly environment, enjoyable events, new friends, and plenty of amenities.

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