Estate Planning for Elderly Homeowners: 5 Tax-Saving Tips & Guidance on Managing Your Home

Estate planning is a crucial process for elderly homeowners, especially when considering the potential tax implications and decisions regarding their property as they transition to senior living.

Here are five practical tips to help save on taxes and insights on managing your home effectively.

When it comes to selling your home, the IRS offers a significant tax break. If you meet certain conditions, such as owning and living in the home for at least two of the five years prior to the sale, you can exclude up to $250,000 of the profit from your income ($500,000 for married couples filing jointly).

This exemption can be a massive tax saver for seniors looking to sell their homes before moving into senior living.

2.Consider a Reverse Mortgage

A reverse mortgage allows homeowners who are 62 or older to convert part of the equity in their home into cash without having to sell their home or pay additional monthly bills.

However, this is a complex financial decision and should be approached with caution and consultation with a financial advisor. The income generated from a reverse mortgage is typically tax-free and can be used to cover living expenses, including senior living costs.

3.Gift the Home

Gifting your home to your children or other relatives can be an effective way to manage your estate. It's important to consider the gift tax implications, but in 2023, the IRS allows you to give up to $17,000 per person per year without incurring gift tax.

For a property, you might need to file a gift tax return, but no tax would likely be due until you surpass the lifetime gift and estate tax exemption amount, significantly higher than most estates.

4.Set Up a Trust

Placing your property in a trust can provide several benefits, including avoiding probate, which can be lengthy and costly. There are different types of trusts, such as a revocable living trust, which allows you to maintain control over the property during your lifetime and specify how the assets are distributed after your death.

Trusts can also offer certain protections against estate taxes and can be structured to minimize the tax burden on your beneficiaries.

5.Invest in Long-term Care Insurance

Investing in long-term care insurance can indirectly help manage tax burdens by covering costs associated with senior living and healthcare that would otherwise deplete your estate.

By preserving your assets, including your home, this insurance can ensure that more of your estate is passed on to your heirs rather than being spent on healthcare.

What to Do With Your House When Moving to Senior Living?

Renting Out the Property

If you are not ready to sell your home when moving into senior living, renting it out can be a viable option. This provides a steady income stream and can help cover the costs of senior living facilities.

It's important to consider hiring a property management company to handle the day-to-day responsibilities if managing property from afar seems daunting.

Selling the Home

If maintaining the home is no longer practical or desirable, selling it may be the best option. Consider the timing of the sale carefully; consulting with a real estate agent who understands the local market trends can help maximize your return.

Keeping the Home in the Family

If you prefer to keep the home within the family, transferring the home through a trust or gifting it directly can ensure it stays in the family and might also provide tax advantages.

Overview

Estate planning for elderly homeowners is about making strategic decisions that align with personal circumstances and financial goals.

It's always recommended to consult with one of our elder law attorneys to tailor a plan that best suits your needs.

By planning wisely, you can ensure that you maximize the financial benefits for yourself and your heirs.