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It’s always interesting to hear people talk about their home. Many view it primarily as an asset, an investment.

I tend to side with Jonathan Clements who recommends on this site that you should consider a home as the place that you live first, and not primarily as an investment asset. Of course, it can be an asset when considering where your funds for retirement will come from. However, you still need a place to live and selling one home for another is only of value to your retirement if you sell high, buy low and are fully aware of the expenses associated with relocation.

Of course, with the current interest in reverse mortgages, this also adds an interesting aspect to the use of your house as a retirement funding asset.

Many people who decide to stay in their existing home or relocate to a “smaller” house recognize that it is primarily a place to live and the ultimate recipient of the home “asset” will be the children upon inheritance of their estate.

Coming up with a practical and realistic solution to passing your house to your children as the beneficiaries of your will can be tricky, especially when the children grew up in the house. The first step is like with so many aspects of planning for later life and beyond, is to have clear and definitive discussions with family members. Having ‘the Talk’ is vital, especially when the family home is involved!

As Ric Runestad, owner of Runestad Financial Services, advises his clients who are considering where their house will go when they pass away, “In order to prevent any kind of conflict between your children, it’s important to have the conversation, set expectations and create a plan of action.”

Mr. Runestad points out the recent realities of having more retirees taking in their adult children and grandchildren leading to situations where the owner of the home becomes accustomed to having the children live with them and then simply deciding to just give them the house. “If this scenario isn’t discussed with all of the children, it can create serious issues in the family dynamics and the issue may never heal,” Runestad says.

As someone who can personally attest to this exact situation occurring to me, I agree fully with Mr. Runestad. However, this wasn’t an issue to any family members because our family did have ‘the Talk’ and this situation was clarified and discussed early and it created no family problems. Not having those discussions early and laying out the arrangement with all family members will cause issues that can often break families apart.

Mr. Runestad also points out that besides the emotional aspects of passing on a home are the tax benefits that may be received by his clients. “Your heirs are automatically entitled to a step up in cost basis. What this means is if you bought the house at $200k, but at the time of death, the fair market value is $800k, the beneficiaries would pay no federal capital gains tax if the house sold at this market value,” Runestad points out.

Whether it’s concerns about taxation, setting up trusts, or arrangements to protect children already living in a home, it’s important for families to get together and clearly discuss whatever arrangement the homeowner decides upon to ensure that all family members are on the same page.

Senior Outlook Today 

July 15, 2015

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