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Navigating Senior Care Expenses: A Comprehensive Handbook

If you’ve observed that your aging parent requires additional assistance with their daily routines, you might be contemplating long-term care. This can offer a beneficial solution, as it encompasses assisted living, memory care, and skilled nursing communities that provide expert support, an active lifestyle, and opportunities for companionship among fellow seniors. Many of these establishments also handle household chores and tasks, granting seniors more leisure time during retirement.

However, the choice to transition into senior care can introduce another challenge: financing the necessary care. For numerous seniors, selling their residence becomes a viable option. Older adults who opt to sell their homes gain access to funds from the sale, which can be allocated for their senior care expenses. Additionally, this decision releases other funds that are currently designated for mortgage payments, property taxes, and home upkeep.

According to the Genworth 2021 Cost of Care Survey, the average monthly cost of assisted living in the United States stands at $4,500, while a semi-private room in a nursing home averages at $7,908. Furthermore, statistics indicate that 20% of individuals reaching 65 years of age today will require long-term care for a period exceeding five years. Given the considerable expenses associated with such care, it is imperative to fully comprehend the implications of selling a house to cover senior living costs.

This comprehensive guide provides valuable insights to assist you in determining the optimal timing for selling a home to finance long-term care. It outlines the essential documentation required and offers an overview of the financial ramifications tied to this decision. Furthermore, you’ll find information about alternative methods to fund long-term care and how to enlist professional assistance for your home sale.


When Is the Right Time To Sell Your Parent’s Home To Pay for Care?

Figuring out the opportune moment to sell your parent’s house involves untangling a web of factors. Among these, the sprawling giant is often the real estate market’s sway. Back in July 2022, the typical U.S. dwelling lingered on the market for a mere 21 days; yet, this span could morph drastically based on your geographical coordinates. The impulse to sell might intensify when a red-hot market beckons. Nevertheless, an intricate tapestry of personal circumstances wields its influence, ultimately steering the course towards selling before or after taking up residence within a senior living enclave.

Reasons To Sell Before Moving Into Senior Living

You’ll Have Fewer Expenses Once You Move

Imagine this: if you sell your home before transitioning to senior living, you won’t have to worry about home maintenance expenses while also managing senior care costs. However, if selling your home takes longer than expected, dealing with two sets of bills could strain your parent’s budget. 

You Want To Pay Down Other Debts

Additionally, consider this: if your parent has other debts, like medical bills, selling the home before moving to senior living can be beneficial. The money from the sale can be used to pay off those debts all at once. After settling bills, you’ll gain a clearer picture of the funds available for senior living.

Reasons to Sell After Moving To Senior Living

Urgent Care for Your Parent

If your parent can’t live alone anymore or has been in the hospital due to an accident or sickness, waiting might not be practical. In these situations, it’s better to move them to a suitable community and sell the house later.

Major Repairs Needed for the Home

Doing repairs is simpler when the house is empty. If you’re planning to enhance the house’s appeal for a better offer, selling after your parent moves out is a wise move.

Supporting Your Parent’s Stress Management

Living in a house up for sale can add stress during a move to senior living. For instance, finding somewhere to go during open houses can be challenging. Frequent disruptions might increase your parent’s stress. Moving into a senior living community before potential buyers show interest could be less stressful.

Ensuring a Quicker Sale

Real estate agents believe decluttered and staged homes sell faster. Maintaining this condition is easier when the house is unoccupied.

Guide for Selling Your Home

Managing all the tasks involved in selling a home can be challenging. When selling to cover long-term care costs, additional considerations come into play. This guide serves as a tool to ensure you address essential aspects and pose the right inquiries throughout the home selling process.

What Documents Do You Need?

Essential Papers for Selling Your Home

  • Sales Contract: This vital document solidifies your parent’s ownership of the property. It also outlines purchase details, including price and terms, from the original sale.
  • Home Appraisal: A skilled evaluation of the home’s market value. Buyers require this for financial planning. Share the previous appraisal when the home was last sold.
  • Manuals and Warranties: Enhance buyer confidence by offering manuals and warranties for household appliances like the stove, refrigerator, washing machine, and dryer.

Possibly Required Documents

  • Mortgage Statement: If your home still has a mortgage, ask your lender for a statement showing the payoff amount. This helps you estimate sale proceeds.
  • Homeowners Insurance Records: Be open with buyers by sharing proof of insurance and any past claims. This provides insight into potential damages and repairs, as well as estimated insurance costs.
  • Maintenance Records and Receipts: Hand over maintenance receipts, dated records of recent tasks like painting, gutter cleaning, window washing, and utility system maps. This reveals recent improvements and areas needing attention.
  • Utility Bills: Buyers might ask for past utility bills to gauge monthly expenses. While not obligatory, this information can aid their decision-making process.
  • Homeowners Association (HOA) Records: If your home belongs to an association, buyers need to understand its details. Provide your parent’s HOA documents, including rules, dues, bylaws, and meeting minutes from the last 2 years. If these are unavailable, the HOA can help.
  • Capital Improvement Receipts: Collect receipts for significant upgrades like bathroom or kitchen renovations, new roofs, or pool additions. These demonstrate the home’s enhancements and can also influence capital gains taxes.
  • Pre-Inspection Report: Arrange a pre-sale inspection to uncover potential surprises for buyers. If you go for this, inform potential buyers about any arising issues.

Financial Aspects of Selling a Home to Cover Long-term Care Costs

Opting to sell a home to cover long-term care expenses is a practical step for numerous seniors. Yet, this choice comes with financial considerations. Grasping the taxes you’ll owe and comprehending how the sales proceeds might affect benefit eligibility empowers you to decide wisely regarding the sale.

Tax Considerations

Upon selling their residence, homeowners might find themselves liable for both state and federal capital gains taxes. These tax obligations could reduce the funds available for senior care.

Capital gains signify the profits gained from the sale of an asset whose value has risen. Short-term capital gains relate to assets held for less than a year and are taxed based on regular income. However, assets owned for more than 12 months fall into the category of long-term capital gains, which are subject to capital gains tax.

Tax issues can become intricate during home sales, hence seeking guidance from a financial expert, accountant, or elder law attorney is advisable. These professionals can offer insights into the tax regulations specific to your state and methods to minimize your overall tax liability.

Long-Term Capital Gains

Seniors can avoid capital gains taxes on their home sale profits if they meet one of these criteria:

  1. Primary residence: If your home was your main living place for at least 2 of the last 5 years, the IRS lets you exclude a specific portion of the profits. In 2022, this was $250,000 for an individual and $500,000 for couples filing jointly.
  2. Inability to live independently: The IRS makes exceptions for those unable to self-care. If your house was your main residence for at least 12 months out of the last 5 years, time spent in a licensed care facility can count towards the 2-year residency requirement for a residence exemption.
  3. Limited income: Taxpayers with a modest income are exempt from capital gains tax. In 2020, the limit was $40,400 for an individual or $80,800 for qualifying widows and couples filing jointly.

If you don’t qualify for an exemption, the capital gains tax rate is usually no more than 15% for most individuals. This is lower than income tax rates, helping to keep your owed amount relatively low.

State Taxes

Certain states like Florida and Texas don’t impose capital gains taxes. However, in most states, you’ll be subject to both federal and state capital gains taxes. State regulations vary, so consulting a tax advisor is advisable to understand how your home sale could be affected.

State capital gains tax rates range from 2.9% to 13.3%. Some states have specific rules regarding capital gains. In Vermont, for instance, you can deduct 40% of gains from assets held over three years. In Washington State, capital gains taxes don’t apply to real estate and retirement savings.

VA Benefits

Certain veterans may qualify for benefits like a veterans pension and Age and Attendance benefits. To receive these payments, an individual’s net worth must be below a specific limit, which was $138,489 in 2022.

When the home serves as the veteran’s primary residence, it’s not considered in their asset count. However, after selling the home, the proceeds become an asset, unless they’re used to buy a new home within the same year. If the home sells for a substantial sum, VA benefits eligibility could be affected.

For veterans not living in their primary residence due to health reasons, there are special asset rules. If the senior resides in a nursing home, care facility, or with a family member for health care, their home isn’t seen as an asset, even if they no longer live there. But if the property is rented out, the rental income counts toward their income limit.

Given the intricacies of asset rules and home ownership, consulting an expert before deciding on a future sale is recommended. The local VA center can address any queries for both you and your parent.

Medicaid and Selling Your Home

Medicaid is a government program that assists low-income individuals in covering healthcare expenses. It can provide support for nursing home care and, in certain states, cover various types of long-term care, such as assisted living and in-home care.

Medicaid receives funding from both federal and state sources and is managed by individual states. This implies that the qualifications for eligibility can vary based on the applicant’s location. However, all applicants must satisfy financial criteria, and the proceeds from selling a home can influence whether these criteria are met.

Since the rules for Medicaid eligibility can be intricate, consulting an elder law attorney or Medicaid planner is recommended for guidance on the best approach to selling your home.

Meeting Medicaid’s Financial Requirements

To qualify for Medicaid, your income and assets must fall below your state’s limit. Income covers sources like wages, Social Security benefits, pensions, and IRA or 401(k) income. Assets include cash, stocks, checking accounts, and real estate that you don’t reside in. Certain assets, like household furnishings and burial trusts, aren’t considered.

If the Medicaid applicant or their spouse lives in a home as their main residence, the property isn’t counted as an asset. However, the home’s equity must also stay within a certain limit, varying from $636,000 to $955,000. Notably, California doesn’t impose an equity limit on primary residences.

After selling the property, the proceeds become an asset. In most states, the asset limit is $2,000 for single applicants and $4,000 for married couples. If your assets exceed these limits, Medicaid eligibility is affected. Nonetheless, many states offer the option to “spend down” assets. This involves using extra countable assets for non-countable ones, such as paying off debt and prepaying funeral expenses. It’s crucial to understand your state’s rules before taking this route.

Medicaid’s Evaluation Period

Medicaid has a “look-back period” to prevent applicants from evading resource limits by selling their home below its actual value. In many states, this period spans 60 months or 5 years, while California’s is shorter at 30 months. This timeframe begins on the day you apply for Medicaid.

Transactions or asset transfers within the look-back period face scrutiny. This covers gifts, donations, and selling or transferring property for less than its value.

Selling or giving away your home at a reduced value during this period breaches the look-back rule. This leads to a penalty period during which you’re ineligible for benefits. The penalty duration is determined by the difference between the sale price and the property’s fair market value. Strategies to avoid the penalty include asset recovery and a waiver for undue hardship. Since qualifying for these is complex, consulting a Medicaid planner or elder law expert is recommended.

Selling a Home When Someone Has Dementia

When dealing with a family member who has dementia like Alzheimer’s, selling their home comes with extra considerations. Typically, only the homeowner can transfer ownership. But if your parent struggles to comprehend the sale’s necessity, or a doctor deems them unfit to sign documents, selling might be challenging.

Still, certain possibilities enable you to intervene and make choices on behalf of your parent.

Understanding Power of Attorney

Power of attorney empowers a trusted individual to make decisions for the elderly person. This person is known as the agent, and the senior is the principal. There are various types of POAs, such as general and durable POAs — the latter focusing on end-of-life choices. Power of attorney regulations differ by state, so researching your state’s guidelines is important.

Remember, dealing with a POA can be complex, especially when acting for an incapacitated person. Seeking assistance from an elder law attorney is advisable to cover all aspects and establish the appropriate POA type.

A POA needs the principal’s signature. If they’re declared unfit, they can’t sign. Thus, it’s better to handle this paperwork soon after your parent’s diagnosis.

Becoming a Guardian

If your parent can’t sign a POA, you can request guardianship. This involves showing that your loved one is incapable of handling their property due to impairment. Once you’re appointed as a guardian, you can manage property and make decisions for them. Keep in mind, this can be a time-consuming and costly process. Seek assistance from an elder law attorney for guidance.

Managing the Emotions of Selling a Home

Handling your own and your parent’s feelings while selling a house can be tough. Memories make saying goodbye hard, and seniors can have mixed emotions about moving to senior care. Try these tips to guide you both through this journey.

  • Wait for readiness: If possible, let your parent decide when to sell. Start the talk early, so they can adjust and feel good about the choice.
  • Discuss openly: Have an honest chat about their needs, fears, and goals in selling. Know their finances and if they owe anything on the house.
  • Highlight benefits: Make them see the positives in selling and moving. Talk finances, lifestyle, and time saved not maintaining a home.
  • Determine involvement level: If selling stresses them, they can nominate a power of attorney to handle details.
  • Handle belongings: Sort their possessions thoughtfully. Sell, donate, or toss items. Keep special ones or share with loved ones.
  • Choose right agent: Pick a real estate pro familiar with selling for senior care. They can arrange sales, packing, and cleaning.
  • Stay transparent: All should understand contracts. If your parent is involved, seeing what they sign can ease worries.

Exploring Different Ways to Fund Senior Care

Selling the house might not fit every senior’s situation. If a family member resides in the home or immediate funds are necessary while waiting for a sale, there exist alternative avenues to secure financial support for senior care.

Bridge Loans: An Option for Financial Flexibility

Consider bridge loans as a short-term solution that offers financial relief during waiting periods for other monetary processes. These loans are commonly utilized when purchasing a new residence before selling the existing one.

For seniors, a bridge loan can provide the means to transition into long-term care without the urgency of a swift home sale. This eases the need to rush into a sale and grants your parent the opportunity to wait for favorable offers or move while the sale is in progress.

Bear in mind that bridge loans lack collateral, resulting in potentially higher interest rates compared to mortgages. Certain lenders allow multiple family members to apply jointly, lessening the financial burden on your parent while securing the loan.

Instant Annuities: Secure Your Future Income

Immediate annuities establish enduring commitments between investors and insurance providers. In these agreements, an investor contributes a lump sum to the insurance company, which reciprocates by granting the investor consistent monthly payments.

This can serve as a useful method to safeguard the earnings from a sale, particularly when the home garners a substantial value. The monthly income yielded by an annuity hinges on the lump sum and prevailing interest rates, influenced by your age and gender. Notably, women, who generally have longer lifespans, receive slightly reduced monthly sums.

Finding the Right Help To Sell Your Home

It’s often easier to navigate this journey with expert help. Even if you understand all the steps involved, delegating part of the process frees up your own time. This reduces your stress and allows you to concentrate on more personal actions, such as selling belongings, selecting a senior care community and settling your parent into their new home. 

Real estate agents and elder law attorneys are the professionals most commonly sought out for assistance. 

Real Estate Professionals: Your Guides in Selling

Real estate professionals possess deep insights into selling properties. They hold a grasp of the local real estate landscape and can offer advice on optimizing property value. A skilled agent can assess if renovations are worth the investment or if an as-is sale is preferable. They’re also adept at enhancing property presentation and can guide you on whether including furniture could boost sales.

Many real estate agents are developing expertise in aiding seniors with downsizing or selling homes to cover long-term care expenses. The National Association of Realtors offers a designation known as the Seniors Real Estate Specialist, which aids in recognizing professionals with specialized insights. Seek individuals with a track record of swift sales at premium market values. To find a local agent, explore the National Association of Realtors‘ member directory.

Elder Law Attorneys

An attorney specializing in elder law can assist you in establishing trusts, powers of attorney, and guardianships. They’re well-versed in Medicaid and other benefits, offering insights on whether selling your home aligns with your financial interests. Legal counsel ensures that your arrangements are lawful and safeguard the proceeds of the sale. The National Academy of Elder Law Attorneys maintains a roster of specialists, making it simple to locate a professional familiar with your state’s legal intricacies. If concerns about attorney fees arise, note that many states provide cost-free legal advice to seniors. Contact your Area Agency on Aging for local support.


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