We ask Tom How to Plan for a Parent Perhaps Needing to Go Into a Retirement Home.
Transcript:
Tom Vaughan:
Okay, so what Katie asked was a really interesting question, actually, “My mother’s about to go into a nursing home, what’s the best way to pay for that?”
Well, a couple of things that come up. And this is really interesting. So let’s assume in this particular case, that the mother is single, not married at this point in time, maybe previously was or what have you. And you’re responsible for trying to figure out how to pay this bill, which can be 6 to 15,000 dollars a month or something like that, depending on kind of the level of care and where you live. And so one of the things that happens is the house tends to be this big asset.
So yeah, it might look outside of the house. But one of the things I’ve been really thinking about very hard, is whether that house has a big capital gain. So here in California, that’s pretty common, where we have this huge gain, somebody paid $100,000, for a house that’s worth a million and a half. And if you sell that they’re going to be a lot of taxes. And what what I’ve run across is, sometimes people don’t know that the cost basis on the house gets stepped up at the date of death. So what that means is, if your mom paid 100,000, for that house, and you sell it now, you’re going to pay taxes, if it’s a big gain. If you wait until she passes away, and let’s say it’s worth a million and a half, the cost basis is going to move up to a million and a half. And then if you had to sell it to settle the estate, there is no capital gains tax. So it might be a good idea to try to figure out a way to keep the home and use the home to try to fund the some of the money that’s needed. So one way of course, is to rent. Not everybody wants to rent, but if you rent the house out, you don’t have to sell it, possibly the income from the rent can help to fill the gap.
The other things are reverse mortgages, not my area of expertise, but I have had clients use those before to try to fund you know, the the nursing home care cost. And so that that would be a great place to start. It’s just a conversation of what to do with the house. I have a couple of situations over the years where people have come in, and they’ve just sold the house and paid this huge capital gain and didn’t actually realize that there was a stepped up cost basis upon death, otherwise they wouldn’t have sold it. So I guess that would be my main message there is just understand how cost basis works. And that happens with stocks also not just your house. But there’s a step up to to current basis. So I think that’s, something to consider there.