Real estate and retirement

BY JAY BRIJPAUL

A senior citizen called me the other day. His name is Andrew, and he is 85 years old with all his faculties in tack. Andrew’s home is paid for. He has some savings in his bank account, but he is scraping by with a pension of two thousand dollars, using it to pay for property taxes, utilities, and food. “What would happen to my home and my bank account when I die?” Andrew had asked. “Should I sell and move to a retirement home? What are my options?” Many seniors at that age are not as fortunate as Andrew. They may have health complications or suffer from depression and are confused. Here are some ideas I advised Andrew.

A will is important. This way you can express your wishes. When choosing an administrator for the will, choose someone neutral. You can choose two administrators who are close friends or relatives. Some seniors use the services of a lawyer or a financial institution as their administrator. This is better when there might be conflict. For example, second marriages. There might be children from the first marriage and a spouse or other children from the second. In such cases, it is best to hire a professional administrator. They may charge around 1% of the value of the estate as their fees.

In lieu of preparing a will, consider adding the children’s names to the property as joint tenants. Joint tenancy in real estate means that the property will automatically go to the survivor when the other one dies. You can have more than two people as joint tenants. This way, the family can save substantially by avoiding paying probate fees. Any real estate lawyer can assist. With a will, it may take a year to settle the estate. The only downside is that when you add someone as a joint owner, they have access to your wealth. You must have absolute trust in that person to add them as a joint tenant.

Seniors need care. Better care can be obtained in senior homes. Many seniors are still active and do not want to give up their independence. In cases where most of their wealth is tied up into a home, it is better to sell the property and invest in a senior condominium. With a senior condominium, seniors can choose to cook and entertain. They can choose to step over to the condominium’s dining hall as well. With this arrangement, they can have daily housekeeping. Help is available around the clock. There are many activities such as daily bus trips or other events to engage seniors. It is a great environment where seniors can socialize. Here, seniors can have enough money to supplement their lifestyles. They also own valuable real estate to pass on.

A reverse mortgage is another option available. Lenders will lend up to 55% of the equity in one lump sum payment or in monthly instalments against the property. When the home is sold or changes hands, lenders will recoup their money plus compound interest. With the recent pandemic, more seniors are choosing this option. This is a good option if house prices keep climbing because the homeowner is building more equity with time. If the market changes direction, the financial blow can be fatal. Some seniors prefer to sell and rent instead. This is good provided that the proceeds from the sale are reinvested into more liquid assets such as bank stocks.

Some seniors choose to sell and move to smaller cities where prices are much more affordable. A client of mine recently sold their condominium in Etobicoke for $600,000 and bought a small cottage in Thunder Bay and a home in Arizona. The two investments cost them $375,000. They invested the remainder in good dividend stocks, and now spend their winters in Arizona and their summers in Thunder Bay.

If there are multiple assets such as rental properties, then it is best to dispose of them. This can be done by either selling them or passing them on to the ones you were hoping to give it to. This will trigger taxation. It’s best to deal with it while you are still around. Consult an accountant for proper tax planning strategies. With multiple assets, a family trust can be established as well.

Retirement can be the golden years if planned properly. It is best to do your own research, consult your close friends and family and never think that you know it all. At this age, one financial slip can cause a fatal fall.