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One popular money script is, “I need to leave an inheritance to my kids.” Yet choices that parents make based on this money script can result in both failing to leave an inheritance and even costing children money. Here is one way that might happen.
My town is home to a senior living retirement community that provides care for an individual or couple in all stages of retirement, including independent living, assisted living, and nursing home care. The cost for a couple includes a one-time, non-refundable fee from $100,000 to $300,000, depending on the size of the unit selected, ranging from studio apartments to townhomes. There is also a monthly stipend that varies with the services provided, typically between $1,500 to $3,500. Fees for assisted living and nursing care are higher. As health declines and the needs for more services arise, a resident can access these services.
However, one can’t wait until a health crisis to move into this all-inclusive senior living facility. All new residents must be able to live independently, pass a physical, and have adequate assets to meet the monthly stipend and miscellaneous living expenses. This makes timing critical, especially since the waiting list for such facilities can be up to five years.
When the resident passes away, there is no equity to pass to heirs. Basically, what a person is buying when they move into this facility is a form of long-term care insurance. The IRS allows around two-thirds of the upfront fee to be deducted from income as a health expense.
A friend mentioned recently that he and his partner were starting to have increasing medical issues and looking to downsize. They had decided against the senior living facility and “losing” the non-refundable fee because they wanted to preserve the money for their kids. Instead, they decided to build a smaller, one-level home. It would cost twice the one-time fee, “But at least our kids will get some equity when we pass.”
This would be true – if both parents should die relatively soon after moving in. Otherwise, this well-intentioned decision may backfire. Today, both parents are reasonably healthy and able to care for a house. They can both drive, cook, shop, and manage the functions of daily life. All that can change in a second with a health crisis.
A health crisis often requires the involvement of a third party, commonly a child living in a different location. Supervising the coordination of medical in-home services, researching available services, and personally helping with transportation and shopping can require hours of a child’s time.
Shopping for an assisted living center is also time-consuming and difficult when an immediate move is needed. Many have waiting lists and limited availability, resulting in moving someone into a less than desirable facility or one a distance away.
Furthermore, the financial impact of declining health can require selling one’s home to provide funds for monthly assisted living or nursing costs. The equity intended “for the kids” could soon be gone. And if parents run out of money – a real-world risk – kids often end up providing financial help.
If the parents lived in an inclusive senior living facility, just one phone call when a health crisis hits would initiate increasing in-home nursing services or moving to assisted living or nursing care. Other benefits of such a facility are intangibles like companionship, opportunities to keep active, transportation assistance, and numerous safety benefits.
Many seniors might view moving to such a community as depriving their children of an inheritance. Yet, sometimes, it can turn out to be a way of taking care of themselves as well as their children’s financial wellbeing.
Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
Read more articles by Rick Kahler