Should Retirees Buy Vacation Homes?

It sounds like a great idea. After all, it’s an investment in real estate and it could be passed along to the next generation. It might be a rental property, too, generating income when the owners aren’t able to enjoy it. However, there are some things to be careful of, warns Barron’s in the article “What Retirees Should Know Before Buying a Vacation Home.”

Taxes, maintenance, insurance and possibly the cost of hiring a rental-management company are just a few things to consider. Above all, don’t think of it as an investment This is because with real estate, there are no guarantees. For one thing, it’s not liquid. You can’t count on selling it for a good price, when you need some ready cash.

The first and most important question: can you afford it? Retirees are usually living on a fixed income. The cost of a vacation home can be loaded with surprises, just like any other property. If there’s enough of a nest egg to live on and there won’t ever be a need to sell fast, then it may be a good move.

If there’s enough money to purchase the home, then investing in someone to manage the property is a good idea. Empty homes are targets for thieves, and if there’s a maintenance issue, an uninhabited home is vulnerable to damages.

Where taxes are concerned, the sale of a second home does not give the seller the same capital gains tax exemption as the sale of a primary residence. That exemption is only available for people who have lived in the home as a primary residence for at least two of the previous five years. The exemption is up to $500,000 for married couples.

There is one way around it, if it makes sense for owners. Let’s say that they plan on downsizing from their primary residence. They sell it and use the tax exemption. They then move to the vacation home, for at least two years, using that as their primary residence. At that point, they can sell the home that has now become a primary residence, enjoy the generous tax exemption and then move to a new primary residence.

As a rental property, owners are permitted to rent for up to 14 days without owing any taxes on the rental income. After the 14-day period, taxes must be paid, but some of the rental expenses are tax deductible.

If the intent is to keep the house for as long as the owners are living, it becomes part of the estate and must be included in an estate plan. Leaving it to the next generation may be feasible, if all of the children want to keep the house and can afford its upkeep. Have the conversation with the children first. Giving the house to children can be accomplished by putting it into a limited liability corporation with an operating agreement that defines it. Each child will have a stake in the entity that owns the home, rather than the house itself.

Talk with your estate planning lawyer about how the purchase and inheritance of a vacation home may impact your overall estate plan before making a purchase.

Reference: Barron’s (Jan. 18, 2020) “What Retirees Should Know Before Buying a Vacation Home”

Tips for Seniors Who Are Moving to Assisted Living

When you are planning your move into assisted living, you can quickly get overwhelmed with the endless list of things you need to do. If you are moving out of a home where you have lived for many years, the thought of having to downsize and get rid of most of your possessions can produce anxiety. If thinking about all the work ahead of you makes you feel sad or tired, it can help to have a roadmap. Here are some organizational tips for seniors who are moving to assisted living.

You will be dealing with two situations – your current house and your new home. Each one needs a tailored game plan.

How to Minimize the Stress of Packing Up Your House

When you move from a large home to a smaller environment, the logistics dictate that everything will not fit into the new space. You will have to part with some of your items.

Rule #1 is you should be the one to decide what you keep and take with you to your new home. No one should dictate what you can have. These strategies can help:

  • Some of the bulk of your items will be a simple matter, because you will have no use for some things in assisted living. For example, since the facility will likely take care of the yard work, all the lawn and gardening equipment can go to a new home. You can save someone a lot of money, by giving them these items when they buy a house.
  • If you move to a warmer part of the country, you might not need your winter gear anymore. Donating those things can help keep someone in need from being cold and reduce how much you have to move.
  • Walk into one of your rooms and make a list of the three or four things you love the most in that room. If you only keep your favorite things, when you are in your new home, everything you see will bring you joy.

Changing how you think about the process, can make it less emotional for you. Instead of thinking about losing most of your belongings, imagine how liberating it will be when you are not tied down by so many things. Most people discover a lightness and freedom, when they get rid of the clutter and things that do not matter.

Settling into Your New Home

When you pack up at your previous house, visualize how the items you keep will fit into the new space. Make sure you hold on to the things that will make you feel comfortable and at home. Arrange your favorite things, so you can see familiar items from every angle throughout your space. With a little planning, you can recreate the feel of your old home environment. Keepsakes matter. While you do not want to be crowded by clutter or create tripping hazards, a cherished clock, photographs, books and artwork can help you feel as if you belong from the first day.

If you are planning to move to an assisted living facility, reach out to your qualified elder law attorney. They may be able to help you with government benefits and are familiar with the process of transitioning.

References:

A Place for Mom. “Moving Seniors: Settling in to Senior Care.” (accessed November 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/moving-seniors