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Moving to Assisted Living: What Should You Do with the House?

Happy Wednesday, all! We have a guest blogger today who is tackling a difficult subject that many of us will have to deal with at some point in our lives. Rhonda Underhill with shares her advice on what to do with your home when moving to assisted living.

Moving to assisted living is a major undertaking. Not only do you have to find the right assisted living community and downsize your possessions, but you also have to decide what to do with your house. Should you leave it to family? Sell it to free up your assets? Rent it out? This guide will help you weigh the pros and cons so you can make the right decision for your finances. 

Leave It to Family 

Leaving the house to family can seem like the simplest option. After all, you plan to leave your estate to the kids anyway, so why not do it now and skip the hard work of selling a house? 

Transferring assets to children while you’re alive has financial drawbacks, however. 

For one, you may need those assets someday. Assisted living isn’t cheap, and nursing homes cost double. If you live for many years, those long-term care costs will add up. 

Giving the house to family now also has tax consequences. While most people can avoid gift taxes with the Unified Federal Gift and Estate Tax Exemption, you may leave your kids with a big capital gains tax bill. After death, your home’s cost basis is stepped up to the fair market value. However, if you give your kids the house before death and they sell it, they’ll be responsible for capital gains taxes on the home’s appreciation. 

Seniors who plan on using Medicaid to pay for senior care should think twice before gifting a house too. State Medicaid agencies look back five years when determining Medicaid eligibility, and transferring a large asset like a house could trigger a lengthy penalty period. 

Rent It Out 

If you’re committed to giving the house to your kids someday, consider renting it out until your death. Renting out your home has two major financial benefits: avoiding capital gains taxes and providing you with a steady income. 

Renting out a house is more work than passing it on, however. You’ll need to figure out how to maintain the home, cover ongoing costs, and manage tenants. Becoming a landlord may be too much for your kids to take on, especially if they don’t live locally. Do the math to determine if it’s profitable to rent out your home while hiring a property manager to maintain the property. Putting your home in the hands of someone else can be nerve-racking, but a good property management company will keep you updated and provide 24/7 support to you and your renters. 

Sell It 

Sometimes, selling the family home makes the most sense. If you need money to pay for senior care, selling gives you a lump sum to work with and reduces your monthly expenses. 

Selling the house after moving into your assisted living community saves you the stress of staging and showing a home while living in it. However, this could you leave you short for moving costs and assisted living fees. Many seniors use bridge loans to cover this gap in funds. 

So, spend a little on updates and staging before listing your home. While it costs more upfront, these efforts lead to higher offers. You may also be responsible for capital gains taxes if your home’s value exceeds $500,000 for a couple filing jointly or $250,000 for an individual. 

Selling might not be the best choice if you need Medicaid to pay for senior care. When you own your home, Medicaid considers it an exempt asset. Once you sell it, however, those funds are used to determine Medicaid eligibility. That’s not a problem if the sale nets enough to finance senior care for your lifetime, but if you expect the money to run out, it may be smarter to keep the home. If you think you may need Medicaid to pay for senior care, talk to an attorney experienced in Medicaid and estate planning. 

Deciding what to do with a family home tugs at your heartstrings. However, whether to gift, sell, or keep your home is a financial decision before anything else. As you plan for your transition to assisted living, keep your financial future at the front of your mind. 

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