Homeowner's downfall: Cost of keeping up the place

[haha]

I would say that often the very best way to keep some funds on ice between husband and wife is to get divorced. Then you have to keep an eye on all the gotchas where you can be deemed to be married in fact. I think that is likely pretty easy and safe.

Ha

 

[rodi]

That is something to think about. So, if it seems one of my parents may go into nursing care, one strategy to protect their assets for the other spouse, is for them to purchase a home prior to going into the nursing home of at least $500K value? Then when the parent in the nursing home passes, the surviving spouse could sell the house and live off that money? Can the state take the money upon the sale of the house to recover costs?

Just curious. My parents have LTC insurance that is pretty good (I think). They are both retired from the fed govt. Just wondering about this strategy in general.

There is a five year lookback - so they have to buy the house five years before entering the nursing home.

If there is a relocation - it must be for the same price or less - or it's deemed to be hiding assets from the medicade point of view.

In Imolduru's example - he added $150k in assets to the example of the owned home. It's apples to oranges.

Depending on the state - the "community spouse" (the one not in the nursing home) can get some of the SS and/or pension of the person in the nursing home - it depends. And depending on total assets - a little more than $100k can be set aside for the community spouse - that's the max and assumes they have more than double that.

Very few assets are excluded from the medicade spend down. Jewelry is included if it was purchased during the 5 year lookback. The gold coins ARE definitely included. Burial parts, 1 car, and the primary residence, furniture and older jewelry are about the only things excluded. Even gifts to kids/grandkids will be looked at during the 5 year lookback. So if Mom or Dad gives you a chunk of $ - be prepared to give it back or use the equivilant to pay the nursing home.

 

[imoldernu]

More specific Q & A's that might be helpful in considering the benefits and pitfalls of medicare.
Medicaid Planning | ElderLawAnswers
Quoting numbers and legal factors is difficult, as they are subject to state laws, and not uniform.

While the spend-down could be to as high as $120K, it could also (dpending on state laws), go down to as low as $25K... That would be the cash amount that the stay home spouse could keep before Medicaid would pay.

Rodi...
I didn't understand the apples/oranges comment... did I miss something/

 

[Fermion]

What if you buy an annuity for your spouse before you go in the nursing home (say 5+ years before). Can they force your spouse to cash out the annuity or claim all of the future income from the annuity against the nursing home costs?

 

[someguy]

What if you buy an annuity for your spouse before you go in the nursing home (say 5+ years before). Can they force your spouse to cash out the annuity or claim all of the future income from the annuity against the nursing home costs?

I believe the answer is yes. Also for cash value insurance. But not term life. But check my info.

 

[Fermion]

I believe the answer is yes. Also for cash value insurance. But not term life. But check my info.

Wow, so a house is really the only good loophole? Wonder how long before they close that...

This seems like a great reason to delay SS until age 70 as it would appear that besides a house, that is the only way to protect some of your income from medicare.

 

[someguy]

Yes, which goes to IMOLDER's point that owning a primary residence can be a major advantage over renting in terms of older age/estate planning. If you have a crystal ball, you could try to offload assets to trusted children/others ahead of time, but you'd have to complete that at least five years out and you must have no control over the assets and must not benefit from them. Plus there is the risk that whoever you transfer assets to intentionally or unintentionally fails to act in your best interest.

Things get really tricky if you have a married couple with significantly different ages, or potential medical conditions that could result in the need for long term care. Imagine Bill (70) and Betty (60) who have $1mm in assets. Bill falls ill and needs LTC at $100K/year. Bill dies at 80 or older. Betty could find herself at 70 in fine health with essentially no assets to live off of. It would actually be "better" financially if Bill died sooner, or if Betty needed LTC (she would qualify under Medicaid).

Wow, so a house is really the only good loophole? Wonder how long before they close that...

This seems like a great reason to delay SS until age 70 as it would appear that besides a house, that is the only way to protect some of your income from medicare.

 

[Fermion]

Well thanks for pointing this out. We are 44 and plan to rent for the next decade but perhaps a house will be in our future after all. As just a way to hide assets it seems like good insurance when you reach age 65ish. Stupid laws.

 

[rodi]

Rodi...
I didn't understand the apples/oranges comment... did I miss something/

Maybe I misunderstood your example:

Case #1... Mom and dad, are renting their home.
They will have to pay for dad's nursing home costs out of their savings, until they have spent the nest egg down to $50,000, at whcih point the state medicaid will pay for the nursing home care. When dad passes away, mom will have social security (for one person) and $50,000 in assets, to last her the rest of her life.

Case #2... Mom and dad own their home, valued at $150,000. The state will take all but $50,000 of their nest egg, before paying for the nursing home. The state will not take their home. This means that when dad passes away, mom's net worth will be the home... $150,000, plus the $50,000. A total of $200,000.

just sayin'

In case #1 - they have $200k - which gets spent down to $50k. But no home. So total assets at the start is $200k.
In case #2 - they have $200k PLUS a home for $150k. Or $350k in assets at the start.

I assume they didn't get the home for free. That's why I said apples/oranges - because they're starting with different net worths.

That said - if you modify your example a bit - it can still make the point.

If you say they have $350k in assets.
Case #1 - they rent but have $350k in cash- and the spend down will go to somewhere between 120k and 25k. No home protection. At the end the community spouse has the spend down set aside, only.
Case #2 - they own a house worth $150k AND have $200k in cash. The $150k home is preserved plus the spend down. So the community spouse ends up with more assets because of the home.

There are federal guidelines on the spend down.
http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Eligibility/Downloads/Spousal-Impoverishment-2014.pdf

 

[dixonge]

We are paying $265/mo for a 500 sq ft fully furnished apartment, most utilities included. Supposedly there will be an electric bill, but it looks like it will be under $5/mo. Natural gas is costing us about $10/mo. Walls are concrete (insane insulation!) floors are all tile. We also have beautiful views and a temperate climate, and we do not own any form of transportation.*

Compare that to our previous 2040 sq. ft. 3-car garage home. $1k+/mo PITI, $4.5K annual taxes, $500 annual HOA dues, time and $ for lawn care, maintenance, cleaning. Acquisition for tons of furniture to fill it all up. 2 cars, 2 motorcycles.

Someone mentioned that it really boils down to lifestyle choices. I agree wholeheartedly. When we owned, we were in an ownership mindset. We *owned* things. We accumulated. When our mindset shifted and our ER plan kicked into gear, we divested.

If we had rented instead of owned our living space, it wouldn't have changed much when we changed our mindset, except it would have made the divesting a bit easier. We still would have been wasting too much money and time on ... stuff.

* Note that in order to get these expense levels you'll need to move outside the US, or buy one of those tiny houses w/ solar panels. We got here by living in Mexico.

 

[Trooper]

Do those of you that rent have situations where your landlords decide to sell and therefore you find yourselves moving every 5 years or so? I think our numbers could justify renting, but the lack of permanence would be a non-starter.

 

[H2ODude]

Do those of you that rent have situations where your landlords decide to sell and therefore you find yourselves moving every 5 years or so? I think our numbers could justify renting, but the lack of permanence would be a non-starter.

Looking at it from the other side, I'm sort of reluctantly overseeing son's rental of his house using a management firm while overseas. Current renter wanted a 2-1/2 year lease because they'd been bounced out because of sales. So apparently it can happen. Frankly, when the lease is up I'm recommending he go in, refurbish, and sell. It's not been that good a deal and suspect care hasn't been that good. Housing market there has recovered a good bit over the last few years.

 

[Amethyst]

For some people, like the subjects of the article I posted, it may make more sense to rent-and-move than to own. The man in the article bought the house back in 1997 and it is now 30 years old, yet he seemingly never budgeted for repairs, even for the roof. In fact, unless I'm reading it wrong, the couple have been incredibly lucky that more things haven't gone wrong with the house.

I started the thread because I was wondering how common it is for people to buy houses, and imagine that PITI will be their only housing expense. I doubt that is an issue with forum members.

Amethyst

Do those of you that rent have situations where your landlords decide to sell and therefore you find yourselves moving every 5 years or so? I think our numbers could justify renting, but the lack of permanence would be a non-starter.

 

[daylatedollarshort]

The market appears to be back to bubble territory in the Bay Area. I just saw small some Habitat for Humanity townhomes on a small lots located next to a busy freeway interchange being offered at over $400K. And you had to be willing to put in 250 - 500 of hours of work yourself, be moderate income ($67k for a family of 4) and fill out an application in order to even be considered to possibly be chosen to receive this bargain basement price.

If you have a moderate income in the Bay Area, I think it just makes more sense to rent or at least not buy a house at over 6 times your household income at the likely top of a housing bubble but what do I know.

I believe this Habitat for Humanity townhouse was a sign from the housing Gods and the Case-Shiller index that it is time to pack up and sell before the latest tech bubble bursts and takes home prices along with it.

In regards to LTC and Medicaid, I am not going to keep a big house at our ages for LTC we may never need, or just need a likely average of two years, in which case we would just pay out of pocket. From what I have read:

How Can I Safely Transfer My Assets to Get Medicaid to Pay for Long-Term Care? | Nolo.com

I do not think a home purchase or a number of other exempt asset transfers to a healthy spouse (like buying a business) have a look back period, so the big house or other exempt asset transfers are always an option down the line should one of us need an outside the bell curve, unusually long term nursing home stay. We save more money by downsizing now than buying or keeping a big house we don't want or need in our fifties for LTC expenses that may or may not occur 20+ years from now, especially when there are many loopholes and spousal asset transfers not subject to a look back period, and the look back period for non-spousal gifts in California is still only 30 months.

 

[meierlde]

The market appears to be back to bubble territory in the Bay Area. I just saw small some Habitat for Humanity townhomes on a small lots located next to a busy freeway interchange being offered at over $400K. And you had to be willing to put in 250 - 500 of hours of work yourself, be moderate income ($67k for a family of 4) and fill out an application in order to even be considered to possibly be chosen to receive this bargain basement price.

If you have a moderate income in the Bay Area, I think it just makes more sense to rent or at least not buy a house at over 6 times your household income at the likely top of a housing bubble but what do I know.

I believe this Habitat for Humanity townhouse was a sign from the housing Gods and the Case-Shiller index that it is time to pack up and sell before the latest tech bubble bursts and takes home prices along with it.

In regards to LTC and Medicaid, I am not going to keep a big house at our ages for LTC we may never need, or just need a likely average of two years, in which case we would just pay out of pocket. From what I have read:

How Can I Safely Transfer My Assets to Get Medicaid to Pay for Long-Term Care? | Nolo.com

I do not think a home purchase or a number of other exempt asset transfers to a healthy spouse (like buying a business) have a look back period, so the big house or other exempt asset transfers are always an option down the line should one of us need an outside the bell curve, unusually long term nursing home stay. We save more money by downsizing now than buying or keeping a big house we don't want or need in our fifties for LTC expenses that may or may not occur 20+ years from now, especially when there are many loopholes and spousal asset transfers not subject to a look back period, and the look back period for non-spousal gifts in California is still only 30 months.

One thing to do if Medicaid is a long term possiblity is to pre-pay for funeral expenses, which is allowed. That will save the survivors from having to pay for them, and since it is not counted towards eligibility it makes a lot of sense. Note that when the survivors go to the funeral home to make arrangements, someone who is alive has to guarantee that the bill will be paid. With a pre-paid funeral that is not going to cost them much. Now then you might decide that cremation at around 2500 to 3000 is cheaper than burial in the 8 to 10 k range.

 

[dixonge]

Do those of you that rent have situations where your landlords decide to sell and therefore you find yourselves moving every 5 years or so? I think our numbers could justify renting, but the lack of permanence would be a non-starter.

In our 23 years of marriage we rented a couple of times early on, both for around 3 years each. The first time we moved to upgrade and escape our apartment's ever-increasing rents. The second time the home (really old farm home in the middle of one of the richest areas in Texas) and surrounding property were sold out from under us. After that, we owned two homes - one for 7 years, the second, which we had built, we stayed in for five years. Then we rented an apartment for one year before early-semi-retiring.

So in our experience a lack of permanence had almost nothing to do with renting a home vs apartment vs home-ownership. I think we're pretty average in that regard as well.

 

[haha]

In my last apartment building there was woman who had lived there for 30 years, a man who had been there for 20. Until the cash that bottomed here perhaps in Dec 2011 which made purchase more attractive to me, I thought I would likely stay in that apartment until I either died or had failing health. Ground floor apartment in a lovely and very low crime area, near to everything. These buildings of course get sold, but they rarely go out of the apartment business. The current owner was still there after 25 years, so I think pride of ownership was important to him.

I think the 30 years resident told me that her first rent on her 3 bedroom flat was $300, about 2800 when I lost touch with her.

The building was very well managed, everything common or important to common function kept very well. But they didn't do much unit by unit upgrading, at most some when there was turnover.

For people who live where multi-unit housing is all or most of what is available, well managed apartments and large condo buildings seem best. Having a johnny on the spot manager is nice.

My condo building is small, so I think I will angle toward getting on the board eventually, to try to see to it that the most important maintenance gets done.

Ha