5 Things to Consider When Selling a House to Pay for Senior Care

Before a move to senior living

The main reason to sell a house before moving to senior living is to use the proceeds as the primary source of funds to pay for that care. The national average cost of independent living is $3,520 per month and for assisted living it’s $5,830 per month, according to A Place for Mom’s proprietary data.^[01]

The best time to sell a home depends on the urgency of a senior’s need to move and their finances, among other factors.

“When I first meet a client, I look at their situation holistically,” says Debbie Beard, a senior real estate specialist in Melbourne, Florida, who counsels families on the ideal time to sell a home. “How is their health? Why are they moving? It’s important to look at the whole picture.”

If a family chooses not to sell the home before their loved one moves into a community (or the home doesn’t sell quickly), they must continue to pay home-related costs. This might include the mortgage, taxes, utility bills, insurance premiums, and maintenance costs on top of senior living costs.

After moving to a community

Families may wait to sell a house until after a loved one has moved because:

• An urgent situation requires a quick move. It may be better to move someone quickly if they’re showing signs that they’re unable to live alone safely. Hospitalization after a fall or a health setback may also necessitate a quick move to a senior care community.
• It’s easier and less disruptive to repair an empty house. It also allows the real estate agent to stage the home in a way that makes it more appealing to buyers.
• It’s less stressful than repeatedly leaving the home for showings. Seniors who live in their home throughout the selling process must keep it neat at all times and must leave during showings and open houses.

Let our care assessment guide you

Selling a home could affect a senior’s eligibility for certain need-based government benefits that they rely on now or will apply for in the future.

VA benefits

VA pension eligibility depends in part on a veteran’s net worth, which includes countable assets and income.^[02] The value of a veteran’s primary residence generally isn’t included in the net worth calculation, subject to VA rules, but proceeds from selling the home may become countable and affect eligibility.^[03] Similar financial eligibility rules apply to Aid and Attendance, Housebound benefits, and Survivors Pension. VA pension programs also have a three-year lookback period, so gifting assets or selling them for less than fair market value can result in a period of ineligibility.^[02]

Medicaid

Medicaid eligibility requirements vary by state, and many states limit the countable assets an individual may have.^[04] A primary residence may be excluded from that limit when certain conditions are met, such as when the applicant intends to return home or a spouse or other qualifying person lives there. State rules may also limit the amount of home equity that can be excluded.

Once the home is sold, however, the proceeds generally become cash or another countable asset. This could make your loved one ineligible for Medicaid long-term care until the proceeds are spent in accordance with program rules. Medicaid’s look-back period is five years.

Families should ask whether the state could place a lien on the home in limited circumstances or seek repayment from the estate after the Medicaid recipient dies. Federal law requires states to pursue estate recovery for certain long-term care benefits paid for people age 55 and older, although protections and hardship exceptions may apply.^[05] Because these rules differ by state and family situation, families should consult an elder law attorney, the state Medicaid agency, or the local area agency on aging (AAA), for legal and benefits guidance before selling a home.

Read more: Assisted Living Benefits for Veterans: A Comprehensive Guide

Selling a home may affect your parent’s taxes, depending on the gain from the sale and whether the home qualifies as their primary residence. An individual may be able to exclude up to $250,000 of capital gain from the sale, while a married couple filing jointly may qualify to exclude up to $500,000.^[06]

To qualify for the exclusion, the seller generally must have owned the home and used it as their primary residence for at least two of the five years before the sale.^[06] Taxes may apply if the seller doesn’t qualify for the exclusion or if the gain exceeds the applicable limit.

An accountant or tax attorney can help determine how the sale may affect your loved one’s specific tax situation.

Because selling a house can elicit complex emotions, Beard offers these tips to help make it a positive experience:

• Keep the process transparent. Everyone involved in the selling process should read any contract before a parent signs it. This minimizes confusion and helps all family members stay on the same page.
• Be proactive about organizing and downsizing. For Beard, painter’s tape and sticky notes are simple but effective tools. To help seniors plan for their new home in a new community, she tapes out the size of each room on the floors of their current house. This helps them get a feel for the space, how they might decorate, and to decide what furniture and possessions they can bring. She also has her clients mark items with different-colored sticky notes, signifying which items to sell, donate, pass down, store, and keep.
• Emphasize the benefits of senior living. Seniors may feel stress about moving into a community. Listen to their concerns and remind them of the benefits of the move like the welcoming atmosphere, fun activities, new friends, and amenities. Ask a community representative for their tips to help smooth this major adjustment.

Before listing the home, confirm who has legal authority to sell it. Your loved one may be able to handle the sale themselves or authorize someone to act through a valid power of attorney. If their decision-making capacity or the scope of the power of attorney is unclear, consult an elder law attorney before moving forward.

Talk with a Senior Living Advisor

The following checklist will help you create a realistic plan:

Estimate care costs and timing.

• Estimate monthly care costs for your loved one.
• Identify anticipated move-in fees of the senior living community chosen for your loved one.
• Determine the move-in date.

Confirm legal authority to sell the house.

• Confirm that your loved one or their power of attorney has authority to sign listing and closing documents.
• Identify whether additional legal documents are needed.

Review financial implications.

• Learn how sale proceeds may affect your loved one’s Medicaid eligibility in their state.
• Determine whether your loved one may meet the ownership and residence requirements for capital-gains exclusion.
• Review potential implications for VA benefits if your loved one relies on them.
• Identify tax questions and seek professional guidance from an accountant or elder law attorney.

Gather property documentation.

• Mortgage information, including remaining debt
• Deed to the house
• Home insurance policy
• Property tax notices
• HOA documents
• Repair and improvement records

Evaluate the home’s value.

• Obtain a market valuation to determine the selling price.
• Compare selling scenarios.
• Estimate expected proceeds.

Plan for the period before the sale closes.

• Identify how your loved one’s care will be paid for should care services begin before the home sells.
• Account for all carrying costs while the home is listed.

Develop a plan for the proceeds.

• Estimate how long care your loved one will be covered using proceeds from the sale of the house.
• Decide how to track and manage the funds.
• Coordinate a payment plan with anticipated care needs.

Keep documentation.

• Maintain all house sale records for taxes.
• Retain documentation of the sale for Medicaid or VA reviews.
• Preserve all records for family transparency.

Working with an accountant or tax attorney can provide helpful professional guidance regarding local, state, and federal tax implications for selling a house.

A Place for Mom’s Senior Living Advisors can help to assess your family’s specific situation, provide information about different types of senior living options such as independent living, assisted living, or memory care, and discuss costs and payment options. Senior Living Advisors can also provide information about in-home care options for families who aren’t ready to sell a home.