Long-Term Care Options for Aging Parents in California: 10 Considerations for Trustee Children
As our parents or loved ones age, important decisions about their long-term care become inevitable. Hopefully along the way, a living trust has been established to provide a blueprint for parental wishes, which is an integral part of avoiding probate in which the State, rather than the family, disburses any assets and may charge significant fees. Assuming a trust has been established, as trustees of their estate, one of the most critical choices trustees may face is determining the best course of action regarding their family home, should parents need to move out for increased care. In many parts of California, where the real estate market has steadily appreciated and rents remain high, deciding between selling the family home or leasing it out to supplement retirement income can be a daunting task. The following are 10 important steps or considerations to assist in the (ideally collaborative) decision-making process to ensure trustee children make well-informed choices that align with their parents' wishes, best interest(s) and financial stability:
1. Ensure that the Trust is Updated and their Medical Directives Exist:
Before anything else, work with your parents and a trust attorney to make sure that their Living Trust is up-to-date with any changes that may have taken place since the initial drafting and finalizing of the original document. Ensure that all assets are in the current trust. Of utmost importance, as part of updating the trust, is to make sure that parental medical directives are in place so that trustees are extremely clear as to each parent’s wishes in certain medical situations. Advanced medical directives are best completed with a trust attorney, but in a pinch, there are California Advanced Medical Directive Forms available.
2. Assess Parental Health and Long-Term Care Needs:
Before delving into any real estate decision, it is crucial to assess the current and potential future health needs of your parents. Consider their medical conditions, mobility, and any other factors that may influence the level of care they require. This evaluation will help determine the most suitable long-term care option for them.
3. Understand the Financial Situation:
Gain a comprehensive understanding of your parents' financial position. Analyze their retirement savings, income sources, and other assets. Determine if the family home represents a significant portion of their net worth and how it fits into their overall financial plan.
4. Research Long-Term Care Options:
Familiarize yourself with the various long-term care options available in California and/or in areas near family members. These may include assisted living facilities, nursing homes, home healthcare services, or adult day care centers. Understand the pros and cons of each option and how they align with your parents' health needs and preferences.
5. Consider Emotional and Personal Factors:
Moving away from a family home can be emotionally challenging for aging parents, as it holds sentimental value and memories. Consider their emotional attachment to the house and how this might impact their well-being when making the decision.
6. Consult with a Financial Advisor, Accountant, and Real Estate Professional:
Seek advice from a financial advisor, accountant, and The Maloney Group real estate professionals, who specialize in senior real estate transactions. They can provide valuable insights into the financial implications of selling or renting the property, as well as potential tax consequences. California is quite unique in its provisions for property owners over the age of 55 years, and a helpful resource may be this Prop 19 Fact Sheet to provide foundational knowledge from which to ask questions of professionals.
7. Explore Rental Market Conditions & Calculate Potential Rental Income:
With the help of The Maloney Group real estate professionals, conduct thorough research on the rental market in the area where the family home is located. Analyze rental rates, occupancy rates, and the demand for rental properties. This information will help determine if renting the property is a viable and profitable option. Use the estimates of potential rental income from the property and compare it to your parents' financial needs in retirement, factoring in approximated long-term care costs, should this become necessary. Consider factors like property management fees, repair and maintenance costs, and potential vacancies.
8. Evaluate Market Trends:
Analyze current and projected real estate market trends in the area. While property values may have appreciated in the past, consider if the trend is likely to continue or if the market might experience a downturn.
9. Review Tax Implications:
Understand the tax implications of both selling and renting the property. Capital gains tax, property taxes, and other tax considerations should be factored into the decision-making process, and an accountant can be a very valuable resource during this exercise. If your family is considering a property transfer from parents to children or grandparents to grandchildren, the Prop 19 Fact Sheet will be helpful, coupled with an accountant’s advice.
10. Engage Your Parents in this Important Discussion:
This is not a one-time conversation; the discussion will most likely happen many times over the course of many years. Using the living trust as your guide, communicate openly and collaborate with your parents about their preferences and concerns while seriously considering certain inevitabilities that must be discussed prior to a health crisis occurring, when prompt decisions are of utmost importance. Involve them in the decision-making process to ensure their wishes and well-being are honored.
In conclusion, as a trustee of your parent(s) or loved one(s), the decision-making process regarding the family home and long-term care options for aging parents in California is multifaceted. By carefully assessing their health needs, understanding their financial situation, conducting thorough research, seeking professional advice, and involving your parents in the process, you can make well-informed choices that prioritize their comfort, financial stability, and overall well-being. Remember, the ultimate goal is to ensure that your parents receive the care they need while preserving their legacy and ensuring their financial security in their golden years.