A Guide to Selling a Home to Pay for Long-Term Senior Care

Older adults go through many physical and cognitive changes as they age, making it more difficult to live independently. As a result, many seniors need some type of long-term care to maintain their quality of life. Available options include home health services, adult day centers, nursing homes and assisted living communities.

According to the Administration for Community Living and the Administration on Aging, nearly 70% of seniors who were 65 years old in 2020 will need long-term care services at some point in their lives. About 37% of those seniors will need assisted living or nursing home care. If your parent needs more care than you can provide at home, it’s time to think about how you’ll pay for that care in the future.

The cost of senior care depends on several factors, including your parent’s geographic location and the type of care they need. In 2021, seniors in the United States paid an average of $4,500 per month for assisted living and $7,908 per month for nursing home care (semiprivate room).

Costs vary widely based on location; for example, seniors in Kansas pay an average of $6,296 per month for nursing home care, while seniors in New York pay an average of $12,7775 per month. For many seniors, selling a home is the only way to raise enough money to cover these costs. Unfortunately, selling a home can be complicated.

This guide provides a detailed overview of what’s involved in selling your parent’s home to cover the cost of senior care. You’ll also learn how selling a home can affect your loved one’s ability to qualify for government benefits, what steps you need to take to make the process less stressful and how to find qualified professionals to help you make the sale.

Timing a Home Sale: Factors to Consider

Before embarking on the home sale process, consider obtaining a power of attorney. Obtaining this prior to any cognitive or physical decline is prudent so when your parent is not able to get to a bank, notary, or make other legal decisions, you can use the power of attorney to step in quickly. This will not only help you avoid delays and expedite financial matters, but also court involvement if cognitive decline does happen.

Home sales don’t happen overnight. You need time to find a real estate agent, make necessary repairs, do home staging and market the property to potential buyers. Once you receive an offer, it may take an additional 30 to 60 days to close the sale. That’s why timing is so important when you’re selling a parent’s home to pay for senior care. Your options are to sell before your parent moves to senior living or after they move to senior living.

Selling Before a Move to Senior Living

In the following scenarios, it may make sense to sell the home before your parent moves to senior living.

Financial Difficulties

With costs rising rapidly, it can be challenging for some seniors to keep up with their utilities, property taxes and other living expenses. It’s even more difficult to meet these obligations when a home still has a mortgage on it. If your parent is having financial difficulties, it may be best to sell the home now before they need to move to a senior living community.

Planning Time

If your loved one has plenty of time to put their house on the market and wait for it to sell, it’s a good idea to start the process before they need senior living. For example, if your parent plans to move in with your family, they can put their house on the market and wait for the right offer.

Market Conditions

In some cities, the demand for homes is much lower than the supply, creating a buyer’s market. When this happens, buyers have more negotiating power than sellers. If your parent lives in a buyer’s market, it may take several months to receive an offer, making it a good idea to put the house on the market well in advance of their move to a senior living community.

Selling After a Move to Senior Living

In these scenarios, you may need to wait for your parent to move to a senior living community before you can put their home on the market.

Condition of the Home

If the house requires extensive renovations before you can list it for sale, you may want to wait until after your parent moves to senior living, so you can hire a contractor and make the needed repairs. Waiting to sell is also beneficial if the home is extremely cluttered and you need extra time to go through each room and figure out what to sell, donate or throw away.

Parent’s Wishes

When you put a house on the market, you need to be prepared for open houses and last-minute showings. If your parent doesn’t want potential buyers coming to the house while they’re living there, consider waiting until after they move to senior living.

Health Considerations

If your parent sustains an injury or develops a serious illness or dementia, they may need to move to a senior living community earlier than expected. In this case, it makes sense to wait until they’re settled so you’ll have more time to get the house ready to sell. Moving a parent living with dementia prior to selling will decrease stress and agitation, as well as make it easier to complete any needed repairs and show the home.

Checklist for Selling a Parent’s Home

Selling a home is a complex process with many steps. Use the checklist below to keep track of what you need to do before and after the sale to ensure you raise as much money as possible for senior care. Click the image below to download

Documents You’ll Need To Sell Your Loved One’s Home

When you show the house to a potential buyer, you should be able to answer questions about utilities, home maintenance, HOA fees and other relevant topics. You’ll also need documents to verify the home’s value and sales history. Start gathering these documents as soon as possible, as it may take several weeks to replace them if you need to order copies from title companies, utility providers, appraisal companies and other organizations.

Documents You Absolutely Need

• Appraisal report: An appraisal is an estimate of a home’s value based on current market conditions. The estimate is based on an inspection of the home, market trends and a review of recent sales data for comparable properties. You’ll need the appraiser’s report to show potential buyers that your asking price is right in line with the value of the home.
• Sales contract: When your parent purchased the home, they should have received a sales contract outlining the terms of the sale. You’ll need this document to prove that your parent owns the home and has the right to sell it.

Documents That May Be Helpful

• Homeowners insurance policy: If your parent moves to senior living before completing the sale, you’ll need to check their homeowners insurance policy to find out whether the coverage will remain in effect once the home is unoccupied.
• Water, gas, sewer and power bills: Budget-conscious buyers may ask questions about average monthly utility costs. If you have past bills on hand, you can answer these questions immediately, instead of making a potential buyer wait for an answer.
• Maintenance and repair records: Potential buyers want to know the home is in good condition. They may feel more comfortable placing an offer if you can provide records related to maintenance and repairs.
• Mortgage documents: If your parent still has a mortgage, you’ll need to make payments while the home is on the market and pay off the loan once the sale closes. Mortgage documents contain account numbers and other important information that can help you meet these obligations.
• HOA records: Potential buyers need to know if your parent’s home belongs to a homeowner’s association. They may also ask questions about monthly HOA fees and neighborhood rules. It’s easier to answer these questions if you have your parent’s HOA records on hand.
• Renovation records: Some remodeling projects — known as capital improvements — increase the value of a home. For example, you may be able to command a higher sales price if the kitchen has brand-new appliances and flooring. Renovation records can help you ensure that the work was up to code with the town or city. You may also want to get an inspection prior to placing the home on the market, as this will help you avoid any surprises and possible loss of a sale or profit.
• Warranty records: If any of the home’s appliances are still under warranty, it can be helpful to give the buyer any warranty-related documents you have on hand.

Potential Financial Implications of Selling a Parent’s Home to Pay for Senior Care

Although selling a home makes it easier to raise funds for long-term care, it can also have some unexpected financial consequences. Before you put the house on the market, make sure you understand how a sale is likely to affect your parent’s tax situation or ability to qualify for government benefits.

Medicaid Eligibility

Medicaid helps individuals with limited financial resources pay for a wide range of health care services. Some seniors even use their Medicaid benefits to cover the cost of long-term care. If you plan to sell your parent’s home, you need to understand how Medicaid determines eligibility.

Financial Resources

When determining eligibility, Medicaid looks at an applicant’s income and assets. Wages, Social Security benefits, pension benefits and investment dividends are just a few examples of income that counts against the limit. Assets include cash, home equity, checking accounts, savings accounts — anything of value that can be sold for cash or used to purchase other items.

If your parent owns a lot of equity in their home, that equity may disqualify them from receiving Medicaid benefits to cover the cost of nursing home care. The home equity limit ranges from $636,000 to $955,000 in 49 states and Washington, D.C. A modest home in an area with low costs of living may not be worth that much, but if your parent lives in a state with high costs of living, they may have more equity than allowed by Medicaid. California is the only state that doesn’t have an equity limit on a Medicaid applicant’s principal residence.

Home Sales and the Medicaid Look-Back Period

Home equity isn’t your only concern when selling a parent’s home to pay for senior care. Medicaid also has a look-back period to ensure applicants don’t sell their homes for less than fair market value to get around the resource limits. California has a look-back period of 30 months; every other state uses a look-back period of 5 years.

If your parent gave away their home or sold it for less than its fair market value (FMV) at any time during the look-back period, Medicaid will assess a penalty. The penalty depends on where your parent resides and the difference between the sale price of the home and its FMV. If your parent lives in New Mexico, for example, the penalty amount is $7,811 per month. Assuming your parent sold the home for $30,000 less than its FMV, they’d be ineligible for Medicaid coverage for 3.84 months ($30,000 divided by $7,811).

Taxes

The Internal Revenue Service defines a capital gain as the difference between the sale price of an asset and the adjusted basis of the asset. Adjusted basis refers to the value of the home after accounting for any increases or decreases in value. If your parent has owned their home for more than 1 year and realizes a capital gain when the sale closes, they may owe long-term capital gains tax.

Long-Term Capital Gains

Long-term capital gains tax maxes out at 15% for single filers earning between $40,400 and $445,850 per year; qualifying widow(er)s and married couples filing jointly who earn between $80,800 and $501,600 per year; heads of household earning $54,100 to $473,750 per year; and married couples filing separately who earn between $40,400 and $250,800 per year.

Your parent may be able to avoid paying long-term capital gains tax if they qualify for at least one of three exceptions:

• Limited income: Single taxpayers with incomes below $40,400 don’t have to pay long-term capital gains tax. The income limit increases to $80,800 for qualifying widow(er)s and married couples filing jointly.
• Unable to live independently: The IRS offers an exception for older adults who had to move to senior living because it wasn’t safe for them to remain at home. Your parent may qualify for the exception if they lived in the home for at least 1 year and a licensed senior living community for at least 1 year during the 5 years prior to the sale.
• Primary residence: If your parent lived in the house for at least 2 out of the 5 years prior to the sale, they may qualify for an exception if their capital gain doesn’t exceed $250,000 (single)/$500,000 (married). For example, if you sell the house in 2023, and your parent lived in the house in 2021 and 2022, they should qualify for the exception.

State Tax Implications

The long-term capital gains tax described above applies to your parent’s federal tax situation. Depending on where they live, they may also owe state taxes after selling a home. Each state has its own rules for taxing capital gains, so consult a tax advisor to find out how a home sale is likely to affect your parent’s tax situation.

In Hawaii, for example, capital gains are taxed at just 7.2%, which is lower than the tax rate for ordinary income. Arkansas taxes only 50% of a taxpayer’s capital gain, while Wisconsin allows residents to exclude 30% of their capital gains from taxation. Before you put the house on the market, take time to research your state’s capital gains tax rate and determine if your parent might qualify for any exceptions. The amount of tax owed may affect how much is left for long-term care, so it’s important to plan as far in advance as possible.

Veterans Benefits

If your parent served as a member of the Armed Forces, they may qualify for pension benefits through the Department of Veterans Affairs (VA). Traditionally, a senior’s pension benefits are based on their length of service, how much they contributed to the pension fund and how much their employer contributed to the fund. VA pensions are a little different.

Eligibility for VA pension benefits depends on a veteran’s net worth, which is based on their earnings and assets. In 2022, a veteran may have a net worth of up to $138,489 and still qualify for VA pension benefits. When determining eligibility, the VA doesn’t count an applicant’s primary residence against their net worth. That means a veteran can own a home worth hundreds of thousands of dollars and still qualify for pension payments.

If you sell your parent’s home, however, the sale could put them over the financial resource limit. This is because the cash they receive from the buyer is an asset that’s included in the net worth calculation. Therefore, you need to crunch the numbers to determine if selling the home makes financial sense if it means your parent will lose their VA pension.

If they own the home free and clear and stand to make hundreds of thousands of dollars on the sale, then selling probably makes sense. If they won’t make much of a profit, however, it may not make sense to give up years’ worth of pension payments to raise money for senior care.

Selling a Parent’s Home After a Dementia Diagnosis

If your parent has dementia, there are some additional legal considerations involved in selling their home. The best course of action depends on how advanced their symptoms are. If they still have the ability to sign legal documents, you may be able to obtain financial power of attorney to make money-related decisions on their behalf. If their dementia is advanced, however, they won’t be able to consent to giving you power of attorney, so you may need to petition the court for guardianship.

Financial Power of Attorney

As long as your parent’s dementia symptoms are mild, they should be able to consent to having you manage their bank accounts, investments and other financial affairs. Still, consider obtaining a financial power of attorney prior to any cognitive or physical decline to avoid having to seek court-appointed guardianship. Power of attorney laws vary by state, but POA documents typically remain in effect until the principal — the person agreeing to allow someone else to manage their affairs — passes away or revokes the power of attorney.

Once you obtain power of attorney over your parent’s financial affairs, you must present the legal documents to the title agent involved in the sales transaction. Doing so proves that you have the right to sell real estate on your parent’s behalf.

Legal Guardianship

If your parent has advanced dementia, you’ll need to file for guardianship. This is a formal legal process in which a judge appoints a guardian and a conservator to act on behalf of someone who’s unable to make their own decisions. The conservator manages the person’s financial affairs, while the guardian manages their legal affairs. In many cases, one person fulfills both roles. Obtaining guardianship makes it possible to buy and sell real estate on your parent’s behalf. You’ll also be able to make other financial decisions, such as determining whether to hold or sell stock investments.

The Emotional Impact of Selling a Parent’s Home

For older adults, selling a home has major emotional implications. If your parent lived in their home for many years, they may be upset about leaving happy memories behind. Selling a home also represents a potential loss of independence, so your parent may feel depressed or angry about their inability to continue living on their own. Many seniors also get emotional about having to pare down their possessions to move to a much smaller place.

It’s important to acknowledge these emotions and let your parent know they have your support. You can also do the following to manage your parent’s emotions — as well as your own — as you prepare to put their home on the market and turn it over to a new owner:

• Ask for help: It’s easy to get into arguments if you’re the only person helping your parent sort through a house filled with memories. Enlist family members or hire an assistant to help keep things organized.
• Start as early as possible: Don’t wait until the last minute to start packing and looking for someone to take away furniture and other unused items. Otherwise, the process will be much more stressful than it needs to be.
• Keep your parent in the loop: Your parent shouldn’t be surprised when someone shows up for an open house or calls to ask a question about the listing. Make sure you let them know when you list the house, when the agent plans to stop by and when they can expect to see buyers coming through.
• Enjoy the memories: Selling a house is a lot of work, but don’t try to rush your parent through the process. If they want to tell you about a special memory or explain why they’ve been collecting certain items over the years, let them.
• Ease your parent’s concerns: If your parent starts to wonder if selling the home is a mistake, remind them of everything they’ll gain once the sale closes. They won’t have to worry about property taxes, home maintenance or expensive repairs. Taking your parent to their new senior living community several times before the move will help ease the transition. Making a visit to attend the concert, have lunch or participate in an interesting activity will help create a positive attitude about the move.

Come up with a system: As you sort through your parent’s possessions, it’s important to keep them organized. You may want to dedicate one room for items to keep and one room for items to donate. If you don’t have that much room, use color-coded sticky notes to mark each item.

How to Raise Additional Funds

The amount of money your parent needs for senior care depends on many factors, such as how much care they need, the monthly cost of care and how many years they expect to need care. In some cases, the proceeds from a home sale aren’t quite enough to cover the full cost. Fortunately, there are other ways to raise funds for long-term care, including immediate annuities, bridge loans and government programs.

Immediate Annuities

One way to raise additional funds is to invest some of the proceeds from the home sale into an immediate annuity. This involves investing a lump sum in exchange for a guaranteed income payment. The payments begin immediately, which is why this type of investment is called an immediate annuity. How much income your parent gets will depend on whether they purchase a fixed annuity or a variable annuity.

• Fixed: With a fixed annuity, the payment amount never changes, no matter what the market does. Some people prefer this type of annuity for the stability it provides.
• Variable: Variable annuities have income payments tied to market performance. If the market is doing well, your parent will get higher payments. If the market dips, however, their payments will decrease accordingly.

Immediate annuities are helpful for generating a steady stream of income payments, but there are a couple of potential drawbacks. If your parent has an emergency and needs to get their money back, it may cost a lot of money to break the contract. You should also know that high inflation can reduce the value of the monthly income payments over time.

Bridge Loans

A bridge loan is a short-term loan that can bridge the gap between moving to a senior living community and selling a home. If you put your home on the market and your parent needs long-term care before the sale closes, you might want to consider this option. Although bridge loans have higher interest rates than traditional mortgages, they’re helpful for paying for senior care while you wait to receive the proceeds from the sale of your parent’s home.

Traditional mortgages also have much longer terms, usually 15 to 30 years, compared to the typical 12 to 24 months for bridge loans. This is why timing is so important when selling a home. If you don’t think the sale will close before the bridge loan comes due, you may want to look for another form of financing. To qualify for a bridge loan, your parent must have ample equity in their home. Equity is what secures the loan until the home sells and your parent can repay the principal balance.

Other Options

Finding Professionals to Guide You Through the Process

Selling a home is a complex process, so don’t feel like you have to do it all on your own. Find a licensed REALTOR to help you prepare a listing and make the home more attractive to potential buyers. If you need help filing for guardianship, obtaining financial power of attorney or taking care of other legal issues related to your parent’s care, use the National Academy of Elder Law Attorneys directory to find a legal expert in your area.