Business Week has an interesting article on house-poor retirees with big property-tax bills.
According to BW, one solution is a reverse mortgage. I guess that's a good idea.
Another is selling: "For one 79-year-old woman, the answer was selling a rental property she owned to her children. Financial adviser Nancy Flint-Budde of Salem, N.Y., describes this client as a classic case of someone who was house-poor. She was spending 60% to 80% of her income, derived from Social Security and a small pension, on property taxes for the rental property and her own home. Following Flint-Budde's advice, she sold the rental house to her children. Although she had to pay taxes on the capital gains, the retiree generated several hundred thousand dollars for herself -- and the property remained in the family, which was important to her."
This sounds like a case of cutting off one's nose to improve their appearance. Perhaps she also needed the extra "several hundred thousand dollars" but if she didn't need the money then there might have been other ways to solve the problem. Was the property-tax burden more expensive than paying taxes on the profits from selling the rental home?
Do we have a tax expert on the board? Instead of selling it and paying taxes, would it have been better for her kids to pay her property taxes in exchange for her keeping her name on the title and passing it through her estate? Or would it have been possible for this woman to start deeding a portion of her rental house to her kids each year by gifting the annual amount ($11K & rising)?
On another rant, it seems to my jaundiced & subjective psyche that many elderly forsake tax avoidance in favor of "just do it" simplifications. In the 1970s one of our elderly relatives presented his kid with three grocery bags full (!!) of E & EE bonds and insisted that they be changed from the parent's name to the kid's name. Essentially they wanted the kid to have the bonds, they didn't want to bother with the details of estate planning or taxes, and they didn't want to worry about it any more. The tax bill for this peace of mind was almost $200K. The kid admitted later that they should have just put the bags in a safe-deposit box (a big one) and told the parent that the task had been completed. Peace of mind would have been achieved either way.
I've heard of other families where the older generation will give away a large gift (and file the gift-tax form) rather than do it as a series of annual gifts. Yeah, it's a lot of paperwork to do a little every year instead of in one big dump. But how much more would they benefit the next generation by taking the trouble, especially if they have their kids do the paperwork? I'm intrigued by the idea of incrementally deeding a house to an inheritor by annual gifting, but I've never heard of anyone using the tactic.
When I'M older I sure hope that I don't lose my youthful zest for tax-avoidance scheming.
According to BW, one solution is a reverse mortgage. I guess that's a good idea.
Another is selling: "For one 79-year-old woman, the answer was selling a rental property she owned to her children. Financial adviser Nancy Flint-Budde of Salem, N.Y., describes this client as a classic case of someone who was house-poor. She was spending 60% to 80% of her income, derived from Social Security and a small pension, on property taxes for the rental property and her own home. Following Flint-Budde's advice, she sold the rental house to her children. Although she had to pay taxes on the capital gains, the retiree generated several hundred thousand dollars for herself -- and the property remained in the family, which was important to her."
This sounds like a case of cutting off one's nose to improve their appearance. Perhaps she also needed the extra "several hundred thousand dollars" but if she didn't need the money then there might have been other ways to solve the problem. Was the property-tax burden more expensive than paying taxes on the profits from selling the rental home?
Do we have a tax expert on the board? Instead of selling it and paying taxes, would it have been better for her kids to pay her property taxes in exchange for her keeping her name on the title and passing it through her estate? Or would it have been possible for this woman to start deeding a portion of her rental house to her kids each year by gifting the annual amount ($11K & rising)?
On another rant, it seems to my jaundiced & subjective psyche that many elderly forsake tax avoidance in favor of "just do it" simplifications. In the 1970s one of our elderly relatives presented his kid with three grocery bags full (!!) of E & EE bonds and insisted that they be changed from the parent's name to the kid's name. Essentially they wanted the kid to have the bonds, they didn't want to bother with the details of estate planning or taxes, and they didn't want to worry about it any more. The tax bill for this peace of mind was almost $200K. The kid admitted later that they should have just put the bags in a safe-deposit box (a big one) and told the parent that the task had been completed. Peace of mind would have been achieved either way.
I've heard of other families where the older generation will give away a large gift (and file the gift-tax form) rather than do it as a series of annual gifts. Yeah, it's a lot of paperwork to do a little every year instead of in one big dump. But how much more would they benefit the next generation by taking the trouble, especially if they have their kids do the paperwork? I'm intrigued by the idea of incrementally deeding a house to an inheritor by annual gifting, but I've never heard of anyone using the tactic.
When I'M older I sure hope that I don't lose my youthful zest for tax-avoidance scheming.