Spring has finally arrived— time to open the windows and let the fresh air in. But perhaps the thought of spring cleaning or tending to necessary repairs is not as easy or satisfying as it once was. You may be overwhelmed at the thought of resurrecting your front lawn, swapping out your storm windows for AC units, and—wait, didn’t you just have to winterize everything 6 months ago? Maybe you are taking a second look at those postcards proclaiming this a “seller’s market” and that “your neighborhood is in demand.” Whether you are moving a little slower, feeling a little frailer, or just trying to take advantage of every newly-retired moment, downsizing may have crossed your mind, and it just may be the right move for you.
Whether you are just toying with the idea, or your health is forcing the issue, please consider these 5 important downsizing questions:
1. What is the right living situation for me?
If you are thinking about downsizing, it is important to first think about what kind of living situation is ideal for you. Being happy and comfortable in your new home and community should take precedence over all else. For instance, holding off on selling your home because you want to “keep it in the family”, despite the fact that you are losing sleep with worry over the upkeep and financial burden, is not ideal. Likewise, being bullied into selling your home when you are not ready to do so, and, say— moving into a tiny in-law apartment with your insufferable son-in-law, would also not be ideal.
Consider opposing factors such as solitude/companionship, autonomy/dependence, privacy/communal living, when evaluating your options, to find the right balance to achieve your lifestyle goals. Some popular downsizing options include: purchasing a smaller home or condo, renting an apartment or house, buying/renting in a retirement community, independent living community, continuing care community, assisted living facility, and moving in with family.
2. What about taxes?
Understanding the tax consequences of selling your primary residence is important, because it might be an expense you did not initially consider. In a nutshell, capital gain is calculated using your tax basis (the value of your home when you acquired (purchased or inherited) plus certain improvements) and the current sale price. A taxpayer is allowed a $250,000 exemption from capital gain tax for his/her primary residence as long as she lived there for 2 of the 5 years preceding the sale. If the gain is less than or equal to $250,000, no capital gains tax is due. A married couple has a $500,000 exemption. Tax is due on the amount of gain in excess of the exemption amount. There is no exemption for a second home. While selling your home to downsize may ultimately be your best or only option, another option is to rent your home out and use the rental income to pay for your new living arrangements.
3. Will I be able to afford this lifestyle?
Another financial consideration is whether your savings and income will sustain the cost of living when you downsize. You must understand all costs of your downsizing options, including, rent, association/activity fees, taxes and utilities, moving/travel expenses if going out of state, property management and, if applicable, the expenses associated with renting your former home, etc. You should think ahead as well, with respect to expenses you may incur in the foreseeable future. For instance, you may need additional supports, such as a meal plan, housekeeping services, home health aides, etc. Ensure you are able to maintain the lifestyle you want now, while keeping in mind that you may need to afford or qualify for benefits for future needs.
4. Are you emotional ready to leave your current home?
While keeping up with a house may become a burden as you get older, it is still your home and it is filled with memories of raising you kids, celebrating milestones, holidays, etc. This is valid reason you may not be ready to leave.
Chances are, if you are downsizing, you will not be able to take all your belongings with you, and the process of sorting and parting with your life’s worth of possessions could be difficult, figuratively and literally. You might need to enlist the help of appraisers, charities accepting donations, junk removal, etc. On top of that, there are all the details involved with moving and settling into your new home. I’ve had clients hire agencies that help with this process, which can be a cathartic and positive experience. I knew a widow in her late 80s who decided to downsize from her large home she had lived in for over 40 years. She was so overwhelmed with maintaining her home and dealing with health issues on her own, that she eventually moved to a one-bedroom apartment in an assisted living community, and she thrived. She felt relief because she no longer had to worry about the house, the yard, grocery shopping, security safety issues, transportation to medical appointments, etc. She finally had the time to socialize with neighbors, the convenience of participating in community activities, and she even took up playing the piano—something she has not done in many years.
5. Do I have a plan in place if I need more help or support in the future?
If your reasons for downsizing now are not health-related, you may not be too worried about whether you are on the first floor of the condo complex, if there is a shuttle service to medical appointments, or to what degree in-home assistance with activities of daily living are offered, etc. While you should not live in fear that you will eventually need more assistance and support, it is beneficial to know whether these options will be available if and when needed. For example, some communities offer independent living, assisted living, and long term care accommodations. For a married couple, this may be preferable if one spouse has health issues and may need more support than the healthier spouse can provide.
Although your focus is finding the right home for you right now, it is also a good time to review your finances, health insurance coverage, and long term care insurance benefits. In Massachusetts, there is a five-year lookback period for applicants requesting skilled long term nursing care benefits through Medicaid (MassHealth). If you are making sizable transfers during or in anticipation of the downsizing process, you need to understand these rules, in the event you need long term care in the future.
Senior Solutions is an elder law and estate planning firm located in Belmont, MA, serving the Boston, MA area. We are ready to help clients as they make transitions in life. If you are downsizing, it is also a good time to review your estate planning needs. Anytime, you are moving in with a family member, it is a good idea to have an agreement in place. This is especially important if you are paying for an addition to their home. Without an agreement in place, you could have a problem if you need to apply for MassHealth coverage to pay for nursing home care. We are ready to help.
Please call us at 617-489-5900 or email us at kmcnair@seniorsolutionsinfo.com.