The American Dream | Home-Ownership

In this episode, Lisa Shoalmire and John Ross discuss issues related to owning a home and in particular issues related to that home in how you age and how you pass things along.

Episode Transcript
John
Welcome to another episode of Aging Insight. I'm your host, John Ross, here with my partner, Lisa Shoalmire. And we're here on Aging Insight every week to talk to you about issues related to getting older and living on your own terms, and taking care of yourself, and doing it in the way you wanna do it. We just know that there's little problems out there, there's little catches, and little things that you gotta be aware of. And like so many problems, little ones can turn into big ones if you don't know what you're doing. But we know that there's answers to these questions and we want you to have answers to whatever questions you have about this. And so, that's what this program is all about. And we want you to get this kind of information. Now, if there were one asset, one...
Lisa
Just one.
John
Asset that has so many different things related to it, good things and potentially bad things, one asset that could impact your long-term care, inheritance, taxes, all different kinds of things.
Lisa
And I'll say that one asset has your emotions all wrapped up in it.
John
Right. You know what we're talking about? The American dream, home-ownership. And that's gonna be our topic today is, issues related to that home and in particular issues related to that home in how you age and how you pass things along. So that's our topic for today.
Lisa
Okay. Well, let's just start with some basics and so many of our seniors are homeowners. They come from a generation that that was the American dream and they worked hard, and they purchased a home, and for lots of seniors they even have that home paid off and there's no mortgage debt owed on that home. So, it's a wonderful asset that gives them security as well as comfort because there's just no place like home. And with our seniors and taxes on a home, seniors there are special exemptions for persons over age 65 if they're the owner of that home. There's also exemptions for persons who have disabilities, that if they reside in that home. So make sure that you are getting your maximum exemptions from taxes related to your home. And of course, if you live out in a rural setting, you wanna make sure and get any acreage that is appropriate with some ag use, some agricultural use. And sometimes you have to take a few steps to make that happen, but that will also lower your property tax bill.
John
And one other thing to consider when we start talking about property taxes, many folks out there are veterans. And if you were ever declared disabled by the the Veterans Administration, so if you're a veteran who has a certain rating level of disability, depending on your state, there may be not just a tax freeze like when you turn 65, your taxes freeze, they don't go up anymore. But there might actually be exemptions where you just don't pay any tax at all or you pay a significantly reduced rate. And not only that, often times, that same benefit can be available to a surviving spouse of a veteran depending on the situation. For example, if a veteran was 100% service connected disabled prior to their death, then they probably got some pretty hefty tax exemptions. Many times, those same exemptions will pass on to that surviving spouse and continue on with that residence.
John
And of course, the less you have to pay on your home, the better chance you have of staying in that home your entire lifetime. That's something a lot of people don't realize. They say... If you take two people who are identical and one of them has a mortgage and one of them has a home that is paid off, statistically speaking, the person whose home is paid off has a better chance of aging in that home longer than the one who has a mortgage payment. Often times, we encourage folks to get that house paid off if they have the financial means.
Lisa
Well, in that same connection, we also often will discourage a parent who is coming in who is thinking about a second mortgage on a home, maybe to help out a child or grandchild that's in economic distress. I know you wanna help, but sometimes we have to look at the whole picture and see what the right thing to do is for yourself and everyone involved. So, that's another good point.
John
Yeah. Again, that home is security, and you might need some of the equity out of it. There's lots of talk about reverse mortgages, but I would say be very careful before you start going down that road. Don't just believe what you see on television because they've got a famous actor that's saying it's the best thing since sliced bread. If you need some equity out of your home to pay some bills, that's fine. But get some advice on that, talk to a financial advisor, talk to an accountant, talk to an elder law attorney, but talk to some people before you go with something as drastic as a reverse mortgage. That, not necessarily the best way. And particularly, don't incur a bunch of debt on that home for that child, that grandchild. At some point in time, as Ronald Reagan used to say, "Just say no." Sometimes you just gotta say no and take care of yourself so that you can help them in other ways.
Lisa
That's right. So, we want you to stay in your home. On those reverse mortgages, John, a lot of people don't really even realize exactly what that is. And that reverse mortgage, they sell it as a way to get monthly cash payments coming into your account that essentially is the bank paying you, but every payment they make to you, they're keeping a tab and it's creating a bigger and bigger loan that has to be paid off at some point.
John
Right. And of course, it's accruing interest. A lot of times people will say, "Well John, can you explain to me a reverse mortgage?" And I say, "Sure. I will give you six dollars if you will give me 10. Sound like a good deal?" [chuckle] Probably not, right? But that's essentially what a reverse mortgage is is they're giving you some much smaller value for your home but then it's gonna accrue interest. At some point in time later, there's gonna be a big bill that's due. Now, it may not be due to you, but there are oftentimes better ways to protect that home and still have some finances. Before you go down that road, you oughta be looking at... If you need some extra funds, there may be some other ways to get those funds out there to help pay for whatever it is that you need, whether it's some care or what. Explore all your options before you jeopardize the home.
Lisa
Right. So we're gonna take our first break, but when we come back, we're gonna talk about some other special issues with your home as far as protecting it during your lifetime and then passing it on to your heirs after you're gone, so stick with us.
John
Hi, I'm John Ross, elder law attorney and board member for the Alzheimer's Alliance, and welcome to Our Place. Our Place is a day program designed to provide rest and relief for the caregivers of people with Alzheimer's and related dementias. Our Place is a safe environment where our friends benefit from socialization in a home-like environment. Alzheimer's is devastating, and affects over 17,000 families in our area. To find out how Our Place can benefit you, please visit our website.
Lisa
Welcome back to Aging Insight. I'm Lisa Shoalmire and I'm here with John Ross. And today, we're talking about what is typically most people's biggest asset and certainly their biggest comfort, and that is their home. And John, in our first segment, we talked about how if you have a home that is paid off and debt-free, then the studies show that you're more likely to remain in that home as you age. And so, I wanna talk about now, if you still have a mortgage on your home, is that gonna create some issues as we look at protecting that home from an asset protection standpoint, or passing that home to a future beneficiary?
John
Absolutely. If you do have a mortgage on your home, it can be difficult to do things that might smoothly and easily transition that home at your death or even... You might be able to make the payments now, but I had some clients recently and their dad had a mortgage on his home, and he's found himself in a nursing home. He's had a heart attack and he had some loss of oxygen to the brain, and it's left him unable to care for himself. And the kids were saying, "Well, we don't wanna lose the home." Well, really, the house was his only asset. And since the house was his only asset, he will qualify for Medicaid to pay for that nursing home. But their question was, "But what about his income? Are we still gonna be able to make the payments?"
John
And unfortunately, I got to be the bearer of bad news, because if he is on Medicaid without a spouse, his monthly income, except for 60 bucks in Texas or 40 bucks in Arkansas, is gonna go to the facility as a co-payment. And since that house payment is a whole lot more than $60, there's nobody there... His income is not gonna be able to pay that mortgage while he's at this facility. And so, either the kids are gonna have to pay for it, Lisa, or that house is gonna end up in foreclosure.
Lisa
Yeah, that's right. We often get that question when a parent who's single is needing nursing home care is, "How are we gonna pay whether there's a mortgage or taxes, insurance, or frankly someone to mow the yard, if all that income is required to be assigned to that facility?" Then the adult children are often asking, "Well, how are we gonna pay for upkeep and the necessary expenses on the home?" And the bottomline is, the state, the Medicaid program, they don't care how it gets paid, but it's not going to be with the income or resources of the person residing at the institution.
John
Well, and of course, along those same lines, Lisa, a lot of times people will say, "Well, if Mom or Dad are gonna be at the facility... Nobody at the home... And we don't want it to get broken into or anything like that, so... " They'll say, "Well, John, can we just sell it?"
Lisa
Yeah, well, of course, you could sell it, but when a person goes into a facility and receives Medicaid support for the cost of that facility, the home is an exempt asset. And so, while that person is living at the nursing facility, their home is not touched. However, if we take that home and we sell it, then we've turned this asset from a home into dollars, and dollars are not exempt. So essentially, if the family sells the home, they're selling the home so they can basically turn around and give the dollars to the state.
John
Yeah, or to the facility as the case may be. And so, oftentimes, if you can plan ahead a little bit, from a standpoint, maybe you do have a mortgage on that, but maybe if you've got some resources, if you've got a little bit of money, maybe not enough to pay off the house, but you've got a little nest egg, you might consider doing some things to protect some cash so that in the event of your incapacity, somebody's got some resources that are exempt from Medicaid. Maybe you've put them in a trust or something like that, to where those funds can be used to cover things like that house payment. You might even have the entire house in a trust so that it could be sold without the proceeds counting against you. But you've gotta do these sort of things very carefully because again some of the first things we talked about like your property taxes and stuff, people all of the time will say, "Well, you know what? I just need to put that house in my kid's name."
Lisa
And if you do that, and if that child does not qualify for any tax exemptions, then now your home does not qualify for tax exemptions, so your taxes really just went up because really the home is now, if you give it to a child, the child owns it, it's really the child's responsibility to pay the taxes, even though perhaps there's an agreement between the parent and child but the parent will continue to do that, but your tax bill will go up.
John
Yeah, and on the same thing, under Section 121 of the Internal Revenue Code, the sale of your personal residence is excluded from capital gains tax. As long as the net proceeds from the sale are less than $250,000 for a single person or 500,000 for a married couple, there's no tax on the sale of your personal residence. But I just recently had a conversation with some folks, mom had put the house in the kids' names and now mom has moved to a facility, and they're thinking about selling the house. Well, it's not mom's house, so they can sell it without affecting mom's benefits. But what are the kids concerned about? Well, it's not their personal residence. And that means, that when they sell that house, what normally would have been excluded from capital gains is now gonna get hit a 20%.
Lisa
Yeah. So there's a lot of issues with the home and this is an area where there's just a lot of rumors and everything out there about what you can and what you should or shouldn't do with the home, particularly if you're looking at long-term care or in passing that home to your heirs and beneficiaries. So, we're gonna take another break and then we're gonna come back and talk a bit more about these issues.
John
Hi, I'm John Ross, Elder Law Attorney and Board Member for the Alzheimer's Alliance, and welcome to Our Place. Our Place is a day program designed to provide rest and relief for the caregivers of people with Alzheimer's and related dementias. Our Place is a safe environment where our friends benefit from socialization in a home-like environment. Alzheimer's is devastating and affects over 17,000 families in our area. To find out how Our Place can benefit you, please visit our website.
John
Welcome back to Aging Insights. I'm John and this is Lisa. And today, you've been watching, we've been talking, and today we're talking about the home, and all the issues related to the home. And we kinda started off the program pointing out that most people would like to continue to live in that home that it's there. It's their biggest asset, it's the one that protects them and gives them comfort, and gives them a feeling of being a part of the American dream and home ownership. And so we want you to know about the rules that relate to that home. We've talked about, for example, the need to protect it from long-term care costs and understand that when those long-term care cost come, there could be issues there. And of course, if you've been receiving long-term care benefits while you're alive, especially benefits like Medicaid, Medicaid's gonna wanna come get paid back when you die.
John
Well, you can have a house and still qualify for Medicaid but if you haven't protected that house appropriately, the state might try to come and take that house after your death. And so, protecting the house from your long-term care cost can be crucial, really to protecting the asset. However, sometimes, things that we love are the ones that hurt us, kind of like getting bit by your favorite dog. But a house, again, it can be a great place, it's where you're comfortable. But sometimes as you get older, there can be some hidden dangers in that home. And again, most people when we ask them, we say, "Hey, do you ever wanna go to a nursing home?" Nobody says yes, nobody wants to go to a nursing home. But what's the single biggest reason why people end up in the nursing home? Falls.
Lisa
That's right.
John
That's the single number one reason, and where did they fall? In their home.
Lisa
So, what happens is so often we're meeting with folks who, a parent is hospitalized with a broken hip, a broken leg, and once we started talking to the person, we find that that parent has fallen a number of times recently, three, four, five, six times. And it gets harder to bounce back from those falls and ultimately a fall with that of a severity will land you in a hospital, and in rehab, and maybe not go home from that. So we want to make your home the safest place it can be because we all want to enjoy that retirement as we age and enjoy the comfort of our own homes. Sometimes we get so used to saving our money for a rainy day that we don't spend it where we should. And I have to say, for our seniors, you should look around your home and there may be some places that you need to spend some money that's gonna keep you in your home longer. And John, what's the number one room and remodel that needs to happen in that home?
John
You don't wanna be hiring contractors when there is a crisis. You wish you would've been doing that now, thinking down the road. And again, if your goal is to stay at home, look around, look for the danger items. You can look around right here, a low topped countertop. This can be a tripping hazard, a rug. Rugs are not good. If you've got that old thick carpet, you know it can get caught under your feet. This may be the time for some new flooring. Get rid of the rugs. If you have small coffee tables, maybe get rid of those. Make sure you've got phone access in your home in every single room. Think about getting around in that house.
Lisa
Yeah. And one of the other issues that we've often seen in the bathroom is that a lot of homes have a shower bathtub combination to where in order to shower, you have to step over the lip of the tub. And sometimes, if we've had a health crisis, that becomes impossible. And so, that's how come we suggest changes to where you have that walk-in shower available that doesn't require you to step up over any height, and even get that adjustment made to where you are able to address your bathing and hygiene needs at home which is where we want you to be.
John
Well, and if you think about it, when you're doing these things in a crisis, because here's what we see is somebody's had some sort of health event, they've had a stroke, they're at the hospital, they wanna go home. But the house is just not set up, so they just kinda cram some things together and bolt some things on the walls, and it doesn't look very good. It may be functional, but just barely. But they've done it in a crisis when if they would've planned ahead, not only could they have made that remodel so that they could live on their own terms, no matter what physical impediments they may have, but you can probably even do it in a way that increases the value of that home so that, whether you need to get a mortgage or whether you pass on that asset to your kids, you've created something of value. So, again, if you've got that little nest egg and you're looking around the house, now may be the time to start making some improvements that are gonna help you as you get older.
Lisa
Yeah. And help you do the number... Most people's number one priority is to stay at home. So, we appreciate the fact that you invite us into your home each week as part of our Aging Insight program, and so we hope that you tune back in next week and that you feel like you're getting some good information that makes you think about these issues well in advance so that you can plan to live your retirement and as you age on your terms.
John
That's right. And if you like the show, if you see us out in town, stop by and just tell us that you enjoy the program so we know you're out there. We want you to appreciate it, and if you have questions, you can always call us every Saturday live at noon on 107.1 on Aging Insight Radio. Until next time, we'll see you later.
Lisa
Bye bye.
John
Bye.

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