At Edwards & Associates, Inc., we know that a unique and special segment of our market is working with senior citizens to sell what is typically their largest investment, one full of family memories and a reflection of life's work and rewards. We believe in honest, straight forward answers, not marketing gimmicks, sales hype, and high pressure tactics typical of some area REALTORS®. We give seniors the highest level of respect, the patience that they need in decision making, and advice they can trust.
Listed below is basic information regarding questions most seniors have:
Understanding Capital Gains and Income Tax ramifications can be a complex issue. Basically you must own and live in the home for two of the five years prior to a sale, and then the property is exempt from Capital Gains taxes up to a gain of $500,000 for married people filing jointly. Each persons circumstances can vary greatly; therefore it is a must to obtain advice from your tax preparer or investment advisor to determine how the sale of your home will impact your income taxes. More information can be found at www.bankrate.com, or from the IRS.
Many seniors own their home outright, and often have properties of significant value. Rather than refinancing a home, taking out the cash, and making payments in a "Forward" mortgage, many seniors are opting to obtain a "Reverse" mortgage where the lender sends you cash, but you do not make monthly payments. So, the amount you owe gets larger as you draw out more and more cash, and the interest is added to your loan balance as you go. As your debt grows, your equity decreases, and if you have the loan for a long time, there may not be any equity left at the end of the loan. Payments to you typically can be monthly, or set up on a line of credit, but there are many more options. Be sure to work with a reputable lender that will not charge excessive or "junk" fees. The Federal Government has an excellent website with detailed information, and AARP's website has considerable advice on Reverse Mortgages as well.
Basically, a Life Estate is created when a person, typically older persons, deeds their homestead to designated heirs, typically their children, retaining the use and enjoyment of the property until they pass away. The property cannot be sold while the person is still living, unless they give their consent to the sale first.
Creating a Life Estate interest is a valuable estate planning tool, as it typically will avoid or minimize a probate of the property, and can be useful in minimizing the effect of the expense of the medical assistance program if used by the person for nursing home care.
It is imperative that you consult your attorney regarding the creation of a Life Estate, as estate planning is very complex and requires expert advice.
Sometimes, senior citizens are no longer able to stay at home, and due to financial circumstances, enter a nursing home under the medical assistance program. If a person had their homestead placed into a Life Estate prior to August 1, 2003, then the County may not have a claim for medical assistance as a lien against the property. After that date, the lien filed by the County is a valid claim, and may need to be paid in full when the property is sold, subject to other jointly held interests in the property. A Life Estate is still a valid estate planning tool, and depending upon the longevity of the person, it can affect the percentage of ownership in the property subject to the medical assistance lien. Advice by your attorney is imperative when dealing with this issue, along with input from the County Representative responsible for your file, or from the Minnesota Healthcare Programs (MHCP) website.