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I am a successor trustee for my mother who has been deemed incapacitated by two doctors. She understands a lot still and remains fairly articulate but she is definitely unable to manage her affairs. I am also her power of attorney. Her power of attorney document gives me the power to sell her property and many other powers. My mother is currently living with me as she is currently unable to live in her home—due to Covid, needing help w/ daily care, and her property being too much for her to take care of. I want to know what might be involved legally and financially and tax consequence wise in downsizing her current home? Currently another family member is living in her home (as they were when she was there) and they would move out upon sale. I know I will need to talk to professionals to understand more about this, and I do have a lawyer helping me in my role as successor trustee. That said, I am interested in other peoples experience and understanding of the pertinent financial issues.


What if we sell her home, which is currently considered her primary residence and buy a residence at a lower price that is closer to me since I am her caregiver, medical POA etc? Because she needs assistance with daily living, and because I have been doing this since Covid began, I am also thinking that we may move her temporarily to a board and care near our home. This would allow me to sell her current home and buy one closer to us and be able to invest the time in doing that because I think it will be too difficult to do that while caring for her in my home (not to mention we have 3 kids, etc). The second home would be intended for her to live in and we would hope that she would be able to do so with a live-in or paid caregiver. Because the home is intended as her residence, would we still be able to have her carry over her current property tax basis to the new home? We are in California. Also, if we buy a home that is less expensive than her current home, and we put the—lets say—$100,000-$200,000 difference in the bank, will there be taxes on this money in someway since it will not be invested in the new property? I am hoping that we could maximize our ability to use this to her benefit rather than losing it in taxes. Also, what would happen if we downsize in this way on her behalf, and then she later cannot live in the new smaller residence due to her health? Would she somehow be vulnerable to loosing the property tax basis that she carried over? (She bought her current home in the 70s, so its worth over 10 times more now). Lastly, if she needed to move from the new home, or if she never even got to live there at all because her health declined, and we then rented out the new downsized property (rather than it ever becoming her residence), would there be any financial consequences to doing that other than the obvious ones involved with renting a property? (Any tax consequences). I can’t recall what the capital gains limit is for a single individual, maybe $230,000 in California. So, for that hypothetical chunk of money that could be left over based on the difference between the selling price of her current home and the purchase price of the downsized home, I am guessing that would be subject to capital gains? (But exempt if less than $230K) This downsizing would also benefit my mother because she currently has about 100 K still left on her mortgage (1K monthly payment) and if we downsize we could get rid of that and she would have no mortgage.


Just want to reality test this idea and see what others think the financial considerations would be.


Thanks for reading.

Yes, you need to talk to a tax professional to got the correct answers. There's just too much to unpack here, and we're not experts.

One thing, though -- did Mom buy the house in the 70s, or did she and Dad hold it as a couple and Dad died? I ask, because if Dad was a co-owner and died, her cost basis on that house is what it was worth when he died, not what they paid for it.

My folks bought their house in California for $45,000 in 1968, but when my dad died in 2018, it was worth $1.7 million. That became my mom's stepped-up cost basis, so if we sold her place now for what it's worth (now about $1.8M), she'd only pay capital gains on the $100,000 difference.

It's complicated stuff, especially here in crazy California, so get a tax person (not H&R Block -- a real tax person) to help you weigh the pros and cons.
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Reply to MJ1929
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Seems to me your are making this really complicated. I am with NYdaughter here. Just sell Moms house. She will not get better. My Moms decline was monthly. It will cost thousands to have 24/7 care for Mom in her home. If u don't use an agency, then u have to do the hiring. Make sure they show up for their shifts, what ru going to do if they don't. You are their employer so as such will need to deduct taxes and send them to the appropriate agencies every quarter. SS has to be matched.

Sell the house. It will save you a lot of headaches. It will need to be sold at Market Value if Medicaid is ever needed. The proceeds put into an acct and only used for Moms care. You can't gift any of it. She is no longer able to sign any kind of contracts. You can't "protect" it because she may need Medicaid within the next 5 years. I would take that money and pay for a nice Assisted Living near you. She would have 24/7 care. People around her. Activities and entertainment. You would only be responsible for her personal needs like Depends, her toiletries, snacks and replacing clothing. You know she is safe and cared for. You don't have the responsibility of paying her bills so she can live in a house. Organizing a team of Caregivers. Then there is upkeep on the house, mowing grass and shoveling snow. I would not do that for a woman suffering from a Dementia. She will lose, if not already, the ability to appreciate anything you do for her. The sooner you settle her into an AL the better. She will adjust to it being her new home.
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Reply to JoAnn29
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MACinCT Feb 14, 2021
I agree. Buying another place takes lots of time and effort when someone is declining and may live there for a year. You can invest her funds from the house sale into interest bearing accounts. If she goes into AL or memory care and you mostly withdraw and itemize for that care, legal fees, professional fees, and medical costs. She may no longer need to pay any taxes. Include an accountant here because she can realize some big savings. Those tax deductions will not translate into any independent living arrangement.
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In my opinion, the time for downsizing your mother has passed. Her needs are only going to increase and you have 3 children. Get a consultation with a good real estate attorney in order to understand all the options and ways to keep as much money available to your mother for her longterm care.
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Reply to NYDaughterInLaw
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You’ve received good advice already. Having walked the path of watching my parents decline, I would never purchase another home for an elderly person with already known issues. The care will only become more intense and the medical needs can only increase. A new home would become another complication
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Reply to Daughterof1930
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Ditto to Tothill's correct observation that downsizing and moving is A LOT of work. You don't mention your mom's age so are to gage what her needs may become and for how long. Where I live (in MN) it is a very HOT seller's market but not great for buyers. You would possibly be doing both.

And, fyi, if the relative currently living in her home refuses to move out, you will need to go through an eviction process through the courts in order to force them out.

Most importantly, you must go into full-time caregiving with your eyes wide open. Please read on this forum under the category of "Burn Out" what happens very often. It sounds like your mom has reasonable financial means, but paid in-home aids can become very expensive, especially if your mom ever needs medically qualified caregivers and 24/7 help. This can easily cost $12K or more every single month. I think you are basing your plans on how she currently is. People often can't imagine how our LOs can become when they have dementia or other cognitive impairment and the impact it has on them personally. I'm not trying to discourage you, just want to point out that you wouldn't be the first well-meaning, highly organized and thoughtfully planning adult child to not fully understand what can happen when they are THE caregiver to a single individual. I wish you much wisdom as you make plans for your future!
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Reply to Geaton777
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You need a team of professionals to answer your questions.

A Tax Accountant, who will be able to cover the implications around taxation on the sale of a principal residence that is in a trust.

An Eldercare attorney who can help with the legal ramifications of you buying a home with Mum's money on her behalf.

A Fee for Service Financial Planner, who can help with advice around property taxes, investing any surplus funds, and other things that may arise.

Now, my thoughts. How realistic is it that Mum will be living in a home with aids for more than 4-5 years? If it is not realistic, would renting make more financial sense? Perhaps in a community that offers differing levels of care, she can start in the independent living in her own apartment. Moving is expensive and disruptive, especially for seniors with cognitive decline.

Why does your Mum have a mortgage one a house that was bought 40+ years ago? This could be indicative of mismanagement of money in the past. Are you 100% certain that you know all the details of Mum's finances? If not, do not take any more steps until you have a full listing of her accounts, debts and other obligations.

Is there going to be family strife when you tell the person living in Mum's house that you are selling it and they have to move out?
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Reply to Tothill
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Isthisrealyreal Feb 14, 2021
Yes to the family strife. I say this because mom is still paying for the mortgage while family member enjoys a free home.
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