Best way for aging parents to access home equity.

[2HOTinPHX]

Hello all
Our parents are in their mid 80s now and their health is declining. We have been researching options to access their home equity in the future if needed for their health care needs. Any suggestions from those here?

 

[Teacher Terry]

I guess it depends on whether they want to stay in the house or are willing to downsize to condo or apartment to bank some equity. From what I have read about reverse mortgages they can be very expensive. Plus if both people are in rehab nursing home for too long they can sell the house even if one is expected to recover and return home.

 

[Katsmeow]

While reverse mortgages can be expensive they do work for some people in some situations. I would think that would be an option. An alternative would be sell and move somewhere less expensive.

 

[2HOTinPHX]

I guess it depends on whether they want to stay in the house or are willing to downsize to condo or apartment to bank some equity. From what I have read about reverse mortgages they can be very expensive. Plus if both people are in rehab nursing home for too long they can sell the house even if one is expected to recover and return home.

I am pretty sure they both want to stay in the house as long as possible. Its the home we all grew up in.

 

[Teacher Terry]

Please research the downside of reverse mortgages in order to make a decision.

 

[Bamaman]

My 91 year old mother was in a CCRC when she passed--and down to her last $5000 cash. We had 24/7 care watching after her as she was just not bad enough to go to full nursing home care.

We were about to have to borrow against her home on the lake. The $153K returnable portion of the CCRC deposit would have gone against the reverse mortgage.

I would say she had the perfect retirement--when you're out of money, it's time to go to a better place.

 

[ckelly78z]

Is a home equity line of credit possible for them, or will that need to be paid back at their age ?

 

[ivinsfan]

I am pretty sure they both want to stay in the house as long as possible. Its the home we all grew up in.

Who doesn't, but the reality can be very different. With both your parents still living I would nix the reverse mortgage as it gives you the least flexibility.

It's not that easy to extract equity from a home you want to live in.

 

[wolf]

Please research the downside of reverse mortgages in order to make a decision.

+1. Heard reverse mortgage are last resort. Possible options:

1. Sell, pocket the cash, rent.
2. Downsize to smaller place.
3. Keep house, rent out. Use rent to help pay for long term care.
4. Keep house, hire live in caregiver. Full/parttime.

Also, tax considerations if selling house. Inherited step-up basis.

Good luck. Been there.

 

[2HOTinPHX]

+1. Heard reverse mortgage are last resort. Possible options:

1. Sell, pocket the cash, rent.
2. Downsize to smaller place.
3. Keep house, rent out. Use rent to help pay for long term care.
4. Keep house, hire live in caregiver. Full/parttime.

Also, tax considerations if selling house. Inherited step-up basis.

Good luck. Been there.

Thanks everyone for your replies.
A little more detail on this situation. Home is in the SF Bay Area. Parents are original owners and have been in house 58 years. Paid off many years ago. So there is probably around 900,000 plus in equity there. Lets just guess other assets around 100k and 3k in ss and pension a month.
I have read one story here that couple aild their home and bought a condo. They were sitting on like 300k cash nest egg from the sale and one of them got sick and they had to spend down most of that money before Medicaid kicked in. Then that person passed and left the spouse with just the condo worth like 50k and very little to live off of.
Trying to figure out how to protect assets for which ever parent is around longest too.

 

[socaldonnan]

Please go see an attorney that specializes in Elder Care. They will help you look at all options. It’s definitely worth doing so.

 

[2HOTinPHX]

Please go see an attorney that specializes in Elder Care. They will help you look at all options. It’s definitely worth doing so.

Thanks for the recommendation. Will definitely look into that.

 

[HI Bill]

Home is in the SF Bay Area. Parents are original owners and have been in house 58 years. So there is probably around 900,000 plus in equity there. Lets just guess other assets around 100k and 3k in ss and pension a month.

When the house is sold, the first $500K of appreciation is tax-free, assuming they're still both alive. So, you'd only have to pay taxes on, say, $900K-$500K-original purchase price...so, maybe $200-300K? For me, this would be a major reason to sell, before either one dies. Not sure how the taxes would work, but you might be down to the $250K basis reduction.

 

[ERD50]

When the house is sold, the first $500K of appreciation is tax-free, assuming they're still both alive. So, you'd only have to pay taxes on, say, $900K-$500K-original purchase price...so, maybe $200-300K? For me, this would be a major reason to sell, before either one dies. Not sure how the taxes would work, but you might be down to the $250K basis reduction.

But if they don't sell, isn't the cost basis stepped up at death, no taxes at all?

-ERD50

 

[ivinsfan]

It's very unlikely they can fund all their care through end of life for 100K....that' doesn't go very far for two people...

 

[imoldernu]

About selling... covered above, but a bit more detail about the Medicare risk in this older post #34 . Real life experiences that actually happened.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html#post1214332

The decision on selling is very real, and can be costly.

 

[HI Bill]

But if they don't sell, isn't the cost basis stepped up at death, no taxes at all?

-ERD50

That would be perfect if they both are able to stay in the home, and don't need the money for health care (which is the OP's concern). The worst case, both financially and personally, would be if one died, then the survivor had to sell, but was only able to take the $250K deduction.

I found this exception from Nolo: "If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death."

Link to the full text is here:
https://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html

IF it appears that only one parent might need $ for health care costs, and the other parent wants to stay in the house, then a HELOC or a reverse mortgage might be acceptable. But see the many warnings about what must go right if your choose the reverse mortgage path (primarily, paying property taxes and insurance, and never letting them lapse, and responding to all bank inquiries).

 

[2HOTinPHX]

About selling... covered above, but a bit more detail about the Medicare risk in this older post #34 . Real life experiences that actually happened.

http://www.early-retirement.org/for...s-of-frugal-retirement-62251.html#post1214332

The decision on selling is very real, and can be costly.

Thank you very much for posting link to that old post. I have read that in the past and the story really stood out in my mind. You are so right you have to look our for surviving spouse in planning for sure.

 

[2HOTinPHX]

That would be perfect if they both are able to stay in the home, and don't need the money for health care (which is the OP's concern). The worst case, both financially and personally, would be if one died, then the survivor had to sell, but was only able to take the $250K deduction.

I found this exception from Nolo: "If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death."

Link to the full text is here:
https://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html

IF it appears that only one parent might need $ for health care costs, and the other parent wants to stay in the house, then a HELOC or a reverse mortgage might be acceptable. But see the many warnings about what must go right if your choose the reverse mortgage path (primarily, paying property taxes and insurance, and never letting them lapse, and responding to all bank inquiries).

Thanks for posting this info. We appreciate all the information we can gather.

 

[Katsmeow]

Please go see an attorney that specializes in Elder Care. They will help you look at all options. It’s definitely worth doing so.

I agree entirely with this particularly given the high value of your parent's home (well by non-California standards) and small cash.

While I am not particularly an advocate of reverse mortgages I know that Wade Pfau feels that in some cases they may be a viable alternative.

https://retirementresearcher.com/using-reverse-mortgages-responsible-retirement-income-plan/

I haven't researched this myself so I don't know that much about it and don't know how up to date this article is. This, again, might be something to discuss with an elder care attorney.