Organizing Your Parent’s Real Estate Needs Before It’s Too Late
Death is the easy way out when it comes to real estate holdings. Whether it’s just the family home or a collection of properties, probate law assigns someone to facilitate their valuation, taxation and redistribution in a timely manner without much in the way of interference from their previous owners.
But, when mom and dad are still alive, and their ability to make effective decisions regarding their ability to live on their own comes into question, then it’s inevitable that an emotionally charged power struggle could eventually rip the family apart from all sides should the children step in to make real estate decisions on their behalf without mutual agreement on making the next move among ALL parents and siblings.
To prevent this, your family needs to come together as a family, now, and put a plan in place to manage four situations that could evolve from one to another:
- Mom and dad can’t look after themselves;
- Mom or Dad goes into long term care where the other can’t go with them;
- Mom passes and Dad can’t look after herself; and
- Dad passes and Mom can’t look after herself.
Pursuing assisted living and long term care solutions might require months and even years of waiting, especially if mom and dad rely more on government pensions than their own savings. So, between now and then someone in the family will probably have to step up to look after them. Who? And for how long? Will the they shuffle from one sibling to the next like children of divorced parents?
You need a plan.
Now, if the long term plan is for you to care for mom and dad in your home then that plan might include taking the money from selling a larger, multi-story structure, now, and buying a smaller, bungalow-style that includes an accessible apartment, renting it out for the time being and socking the proceeds away for your own retirement and long term care.
If moving into assisted or long term care is part of a shorter term plan then it’s critical to register, now, to get your parent’s name in the queue. Find the best price for their home while there’s still good demand and organize their finances, together as a family, to provide a comfortable, dignified and joyful lifestyle.
If mom and dad own income properties that contribute to their monthly earnings and/or they are reluctant in selling or transferring title of the family cottage then consult with a reputable accountant to discuss the merits of creating a family trust. The financial benefits aren’t as great as they use to be but, managing properties as a trust can put administrative policies and procedures in place that help maintain a level playing field for all stakeholders while minimizing the risk of any one person or party taking advantage of assets for their own personal gains.
On the topic of the family cottage, before willing it to the kids, perhaps you might institute a 36 month trial inheritance. Because, not everyone fully appreciates what it takes to maintain a recreational property in terms of structure, operating costs, taxes and “community” politics — let alone the family politics of prime-time tenancy. Roofs have to replaced, animal damage has to be repaired, the grass cut and the beach cleared of debris and garbage – who’s responsible for those costs? Johnny uses the cottage 4 weeks out of the year but Suzy uses it for 3 weekends – is it an equal share or proportionate even though everyone’s on title? And, what about selling – can one person hold out on paying their share to force the sale of the property on everyone else? Can co-owners rent the property to friends and strangers on their booked weekend times? These are all governance issues that common owners will have to negotiate among themselves and, if they can’t, then perhaps it’s better to sell the property outright leaving the family whole rather than divided.
The take away from our brief conversation, here, is that there are a lot of questions that have to be considered in planning for mom and dad’s later years – especially when they’re not as capable of looking after their financial interests as they once were.
And, if there’s any sense of wealth that’s going to be redistributed and/or redirected then you need a team of licensed professionals providing advice and counsel in a way that promotes transparency among any and all siblings — Suzy can’t be thinking that Johnny’s influence on his portion of the inheritance is greater because mom and dad are living with him nor can Johnny be second guessing Suzy’s investment choices because she’s been asked to manage their money.
Here’s a few thoughts on your next steps:
- Put together a team that includes a lawyer, accountant and a licensed real estate professional to help guide decision making;
Help your parents organize their finances listing all income, expense, assets and liabilities including current copies of insurance policies, pension programs, loan and mortgage agreements, investment portfolios, wills, property deeds or purchase agreements – including names and phone numbers of key contacts relating to those documents;
- Have each professional review the documents and provide a summary statement such that there’s agreement among all stakeholders in terms of what ‘now’ looks like; and
- Put a written plan together that outlines what steps will be taken and by whom should mom and dad not be able to care for themselves.
Remember that stocks and bonds can be liquidated rather quickly but real estate takes time to convert into cash, especially if stakeholders want the best price that the market can afford. Decisions may have to be made in terms of investing in updates and repairs prior to listing the property and there may be capital gains taxes to be paid after the fact for farms and cottages. Reverse mortgages will definitely impact the proceeds from the sale as could any other security or loan held against the property for which a penalty will be paid to discharge it. So, it’s important that you consult with your licensed real estate professional before real estate assets are listed for sale to fully understand what to expect at the other end of the transaction.
In concluding our conversation, here, we want to emphasize the importance of a family coming together as a team in helping their parents at what could be a very uncomfortable and embarrassing time in their lives. Mom and dad raised a family, held jobs and did what had to be done to make it all work, and to be the rock for others when others needed them. Now that they need others to care for them then they might experience unhealthy thoughts or feelings about themselves or you. Be prepared to add a therapist to your team of licensed professionals to help them, as well as everyone involved, during this transition.
Should you have any questions about your parent’s real estate needs – or yours, for that matter; or, you would like a professional referral to a lawyer or accountant then please reach out to us.
We’re here for you – and your family.
All of them.