A Wise Daughter’s Guide to Her Parents’ Real Estate

You may hope it will never happen, but one day you may find that your parents or older relatives need your help to manage their home. How will you carry out the sacred trust of getting the best price or helping them keep the property, and age in place? Even more difficult, may be guiding them to choose their next home, especially if they resist moving.

To do the job right, you need to be both savvy about real estate and sensitive to handling the emotions of older loved ones. When that person is your Mom or Dad, you get pretty emotional yourself.

Start by realizing that getting older is a developmental stage in life. Developmental psychologist Eric Erickson called this stage “Generativity” or “Geotranscendance.” It is a stage during which it is natural and healthy to think about our legacy. Underneath the fears and ailments of older people lies a greater purpose: to be remembered, to reminisce. Yes, and often to try to hold on and sometimes glorify the past. But, above all is the sometimes-desperate need to keep control over their lives.

Any of you who have tried to get Mom and Dad to move out of a home that is too big, too expensive, too dangerous for them, knows that fear of loss, and desire for control impacts real estate decisions. No matter what the financial, social, or health cost to them, they equate staying put with staying in control.

David Solie, author of “How to Say It to Seniors,” counsels you to let the older person talk. If they tell a story, listen. You cannot make your parents young again, but you can see them as a distinct human being, and not make them invisible.

Love means never having to say, “Let’s get this over with.” It will take much, much longer for you to dispose of their property, move them, sell or buy real estate (even choose the broker and set a price) than it does when you handle your own affairs. Expect it.

Even with investment real estate things may still be emotional. No one loves you as unconditionally as your parents, but also no one knows your most fundamental flaws. Your parents might have worked all their lives to acquire and run their property. Giving over the helm to you is plain frightening.

You are going to have to explain some hard to understand legal and tax concepts amidst this emotional turmoil. Take a tip from lawyers and financial planners. First, explain in the simplest terms possible. Then ask your parent to repeat what they understood you to say. Correct any misunderstanding and ask them for a recap. Let it sink in. They will get it eventually: don’t make a move or ask them to until you know they understand.
Finally, be knowledgeable about the strategy you are suggesting:

Home Ownership and Medicaid: If at home aid is available through Medicaid where your parents live (Medicaid is a Federal program, but each state has different rules), they may qualify, even if they own a home. If one parent needs to go to an assistive facility, the community spouse may stay in the home. The Medicaid Homestead Exemption does not count the home to determine eli¬gibility, if one spouse still lives there. The house is also not counted as an asset if an adult child lived there for the preceding two years and acted as a caregiver. But, after the death of the Medicaid recipient there can be recovery against the equity in the home, if the spouse/adult child no longer lives in the home.

Reverse Mortgages: Available only to homeowners over the age of 62, a reverse mortgage is an annuity collateralized by your home. The technical term for the reverse mortgage is the reverse annuity mortgage, because the homeowner can collect a tax - free monthly check for the rest of their life, no matter how long they live. Some reverse mortgages allow a lump sum instead of a monthly amount. The amount and cost of the reverse mortgage is based on the age of the homeowner when they take the mortgage, the value of the home, and the interest rate at the time of the mortgage closing.

Reverse mortgage income is not taxable, and the real estate taxes are deductible. The loan is paid back upon moving, selling the home, or upon the homeowners death. There is a cap on the amount that can be borrowed, but the cap is getting larger and larger. At demise, there may be no equity left in the home, but not necessarily. If the home has appreciated, it is possible that heirs can pay off the mortgage and have an inheritance left.
Recently, the reverse mortage was sanctioned to be issued at the closing of a home purchase. This means that if Mom and Dad decide to sell their home, and buy a smaller one, they can pocket the proceeds of the sale, and buy the new home with a reverse mortgage. In this way, they can use all of their equity to fund their future and still be homeowners. The AARP helps you compare plans at www.aarp.org/revmort, and down-load the program, Home Made Money; see also, National Reverse Mortgage Lenders Association (www.reversemortgage.org).

Selling a Remainder Interest: If parents own a co - op or condominium, or even a private home, they may be able to sell it and still live in it. The price, of course, is set low, discounted for the years they plan to stay. The buyer takes the risk of their longevity. This works most easily with family mem¬bers as buyers, but many co - op and condominiums allow these programs with investor/buyers. In fact an investor, even a friend oe neighbor, can buy the remainder interest in their IRA, so long as it is self directed through an independent custodian, see, www.theentrustgroup.com, and issue Mom or Dad a life lease.

Sale - Leaseback: A related strategy is to sell the house outright, and lease it back from the buyer. Your parents get full, present market value, but they are responsible under a lease. In all cases, an attorney will negotiate the terms and protect them under the usual landlord – tenant laws. Of course, they also lose the upside potential for the growth of equity.

Life Estates and Life Leases: These are both traditional estate - planning strategies that allow your parents to transfer the home to you or other person and live there without interruption, for as long as they want. Done correctly, life estates and life leases keep the value of the home out of the estate for tax pur¬poses, but preserve the step up in basis. When your parents transfer a home but keep a life use, they get the tax bills but they still get any senior tax breaks that the locale allows. The property can never be sold without their written consent.

Taxes Step up in Basis: When transferring an appreciated home to an heir during their lifetime, remember that your parents do not get the "step up in basis, ” they would get if they left the home to you at their death. With the step up, they are deemed to have paid the date of death value of the property, or its value six months later, whichever gets heirs the lower tax when they sell.

Sale – leasebacks may still get the step up as mighr life estates and life leases, because occupancy does not pass until death. Check with your attorney and accountant for proper structuring.

Accessory Apartments -If Mom and or Dad decide to move in with you temporarily you may have to retool your space, add a ramp, get a mobility devise, or just get incontinence and other supplies. All of these are available at discounts at www.Cane-n-Able.com. Just write “Longevity Club” in the space that requests “Attention,” when you check out your shopping cart. But if a parent is slated to be with you for a long time, you may need to build a separate apartment for them on your grounds.

This is called an ancillary apartment. Many counties allow zoning for this, so long as the occupant is a parent. Check your local zoning board. Also visit www.BoomerHouse.com, the realer estate site of the Longevity Club, to look for a home, sell a home, or get information on redesigning a home for an older loved one.

Property Exchanges: When selling parents’ investment property, one issue is often the capital gains tax, as they may have purchased the real estate decades ago, at a very low comparative price. You are probably familiar with tax-deferred exchanges of like kind commercial or rental property. Consider converting your parents’ property into rental real estate, if it is not already. After a two year period, you will be able to make a tax deferred exchange of the property for a better managed, or easier to manage income stream property, without incurring a whopping immediate capital gains tax.

For more information on handling your parents affairs check out www.BoomerHouse.com , and post your questions and www.AdrianeBerg.com, www.longevityclubonline.com, www.GenerationBold.com and www.CriticalPathSuccess.com