I had a conversation with a 70 year old woman. She and her husband had purchased their home in 1980 for 100K. Today it will sell for somewhere in the neighborhood of 800K. Her husband passed on several years ago and the house has become too big for her. Since she qualified for a 250K capital gain exclusion, she would be left with paying capital gains on 450K. Here in California, that would be somewhere in the neighborhood of 109K. For a 70 year old retired widow, she would perhaps never be able to save 109K in the remainder of her lifetime. It's a big deal.
She has no debt on her home.
A very viable option we are exploring is to put the entire 800K in a Private Annuity Trust upon sale. We haven't crunched all the numbers yet, but she would begin receiving monthly payments of probably in excess of 6K/mo for the rest of her life.
With this income, she can rent a place just about anywhere she desires, and not have to worry about upkeep, property tax, or replacing expensive items like roofs, appliances, pipes, etc. She can sock away any extra monies for trips, gifts, or future medical care. She can have a good emergency fund as a cushion against whatever life may hold. A good long term care policy is another consideration to protect the rest of her savings from depletion in case of serious illness.
She has one child, and two grandchildren. Any monies left in the trust on her death will pass to them.
This is a far superior option to something like a reverse mortgage.
With proper planning, she will have peace of mind and an income stream most retirees could only hope for.
Paula Straub
http://www.savegainstax.com
askpaula@savegainstax.com
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