One of the more difficult decisions for many people is what to do with the family home when elderly parents are unable to maintain it. The alternatives include selling the house so the seniors can move to a condominium or retirement community or upgrading it to allow live-in care.
These decisions should not be rushed. For many seniors, the family home remains their major asset and as a result of the principal residence exemption, it can be sold without paying any income taxes. In many cases, however, the money from the sale must generate enough income after investment (when added to all other income from investments or pension) to look after their needs during retirement.
This is why an estate planner should be brought in early; a real estate agent who specializes in this area should also be consulted. This is a new specialty for real estate agents, developed by longtime real estate lawyer and broker Barry Lebow. To obtain an Accredited Senior Agent (ASA) designation, an agent must successfully complete courses, have a minimum of three years of real estate experience, have listed or sold to at least three clients who are over 55 and remain a member in good standing of their provincial registrar, with no complaints.
Julie Wilson, an Ottawa salesperson who has this designation, has written a useful book called Beyond the Sold Sign, which gives many practical checklists to ensure all appropriate questions are asked before a decision is made.
ASAs can assist in analyzing whether staying in the home is the best option. They should have a knowledge of the retirement community options in your area and have a team of professionals to refer in the areas of estate planning, legal and health issues. In most cases, they will charge a consultation fee. If you decide to sell the home, you can contact the ASA to do the work, or hire another agent. Some agents won't charge for this service, in order to build a relationship with the family that can translate into referrals later.
Josh Kuhl, the vice-president of All Seniors Care Living Centres, which operates 20 private retirement homes across Canada, says the top concerns for families when choosing a retirement home are a sense of community, 24-hour care and security. They find that in many cases it is difficult to obtain the equivalent care staying in the home.
Many homeowners who want to stay in their homes do not have enough money for upgrades that would make home-care easier. Recognizing this is a growing issue, the Liberal government's re-election campaign includes a provision for a tax-free credit to help seniors make these upgrades.
One way to finance the upgrades is a reverse mortgage, although it isn't for everyone. A reverse mortgage lets you borrow up to 40 per cent of the value of your home and not repay it while you live there. If you move or die, the principal, plus accumulated interest, is payable.
The disadvantage is that the interest rate will usually be 2 per cent higher than regular interest rates. The loan is usually guaranteed never to exceed the fair market value of your home. However, I have heard of one unfortunate situation where a woman died and the children found out she had obtained a reverse mortgage and gambled away all of the money at the casinos, leaving virtually no equity.
Others argue you can obtain a line of credit for less interest, although you will have to make payments on a regular monthly basis. This may make more sense when you have other income or investments that you can use to repay your line of credit.
All of these decisions should be made with input from the entire family, under the guidance of professionals, so that your retirement years can still be a period of stability and security.
Mark Weisleder is a lawyer, author and speaker to the real estate industry. Contact him at firstname.lastname@example.org