A lifetime of hard work, careful saving and sound investments can often leave you in pretty good financial shape upon retirement. True, none of it is an exact science but these together represent a fairly reliable rule of thumb for wealth creation. Not only can this formula fund golden years of peace and comfort, it can also form a considerable endowment to leave the next generation. Among the diverse assets seniors can pass on is the familial home. In many cases, this property is mortgage-free and home values are high in a tight, sellers' real estate market.
Who Gets First Dibs?
Until that last payment is made, the mortgage lender is usually in "first position" to seize the property in the event of default (after the sheriff if taxes go unpaid, that is!). Once the house is free and clear, its full value is at the disposal of the owner. Yet there is a fine line between the golden years and old age, the latter inevitable setting in eventually. Should institutional care be necessary, the facility may require that the house be sold to finance the new resident, at least until Medicaid provisions are applied. Many families have little choice but to comply with this condition. Still, this scenario is avoidable if the right decisions are made in advance.
Alternatives to Liquidation
The beloved home can survive the assisted living and/or nursing facility if, for example, the owner(s) maintain long-term care insurance. This coverage can pay for services administered in the home or in an institutional setting. Services include, dressing, bathing, feeding or simply a living quarters with professional staff nearby. Premiums are based on how early the insurance is procured; how much the policy pays for per diem; and the number of years to which the policy will extend. If all goes well, this insurance can provide for the aged beneficiary without having to touch other assets.
People of more modest means, however, struggle to pay their regular health care and life insurance premiums, much less an additional expense for the last chapter of life. What are their options? Fortunately, they have some. If family members are knowledgeable and experienced, they can perform some of the ministerial functions noted above on behalf of an aging parent, grandparent, aunt or uncle. This works out if the debilitation is minor and the homeowner just needs some help with meals, dressing, getting in and out of the tub etc. Another avenue is for family to underwrite the costs of a facility or in-home full-time caregiving. Again, this is not always possible; when doable, however, it preserves the house as an asset.
Aging in Place
Keeping the house to pass on to the next generation mandates that the family is on board while looking out for the aging member's interests. Those who opt to age in place should plan early for this way of life. It might demand alterations to the property; delegating eventual chores like food preparation, house cleaning and bill paying; and preparing for legal eventualities such as power of attorney. This, of course, means trusting those to whom you delegate authority.
One way to provide legal and emotional security amidst the anxious realities of aging, is to convey the house to family members while retaining a life estate. In essence, the parent conveys ownership to children while preserving his or her tenancy interest at the same time. In so doing, the parent precludes the need for probate after death since the child or children already own the property. This way, the older person can stay at home until death, at which point there is no further conveyance required. Rules regarding life estates vary state by state so discussing the matter with a seasoned real estate lawyer is strongly advised. Home values persist if the home is sold after the parent is deceased.