I wanted to follow some followup on the questions I posed May 13 about seniors qualifying for rental housing or condo purchase after selling an oversized house. Many of the issues I had to “preview” relate to the fact that I was living in a 1949-built house owned legally by my (late) mother’s trust, not technically by me. But I do have the powers as the sole acting trustee.
I’ve had conversations with two separate high-end modern high-rise properties (both built in the 70s-80s) and both told me that they would rent to a retired senior who could demonstrate more than sufficient assets in a checking account (one that will not lose principal other than from making actual payments) to cover the term of a lease. Lease amounts tend to lead to lower monthly rents for longer terms, but rental prices are set algorithmically daily based on supply and demand in a specific geographical area; most corporate large landlords use these automated processes to set rents.
There is a possible risk that a lease would not be renewed (as if the renter could not come up with the same reserve guarantee for a renewal, or if a building were sold for condo, or if market rent spiked suddenly).
I did wind up purchasing a condo for about one-third of what the house sold for, even allowing for extra expenses (and replacing a heat pump compressor immediately on me). Mathematically, it is likely that the remaining gain in liquidity will last longer (allowing for property taxes and condo dues, and some repairs) than a larger amount would spent entirely on rent.
As I indicated on my (personal) “Notes” blog in a recent post, there can be restrictions on how the liquidity gain in a trust (irrevocable in the name of a parent or ancestor) is spent. Some trusts discourage the sale of an estate house (on the theory it should stay in the family) or try to prohibit downsizing real estate holdings unless there is a specific special need on the part of a trustee or beneficiary. I found that a condo purchase for cash in the name of mother’s trust seemed to be OK with everyone (at one time I wanted it to be in another trust in my own name only). This might not have been the case had a mortgage been necessary. (A reverse mortgage might be allowed.)
Special needs are met in a variety of senior housing developments for rent (sometimes purchase). Some offer meals and have HUD-subsidized rents. Typically there is a qualification formula that includes a specific percentage of the person’s total assets (I think it is 0.8% per year right now) to count as income. This arrangement is certainly subject to the whims of policy (Congress or the administration). There are other high-end properties (like Goodwin House in northern Virginia) that require a large deposit to rent, but then allow move-in to an assisted living unit when that becomes necessary. Use of trust money for the trustee’s own special medical needs sometimes requires medical supervision, monitoring and approval.
The general lesson from all of this on trusts is that they are “convenient” for someone inheriting an estate in usually avoiding probate court. But they often restrict how liquid assets (beyond the distribution instructions to other family inherit-ees), are used, and impose fiduciary responsibility on the trustee that discourages further distributions (other than providing some income to beneficiaries) until after the trustee’s own death. They usually are quite serious about the trustee’s being able to handle to unpredictable possibility of his own needs (like stroke, Alzheimer’s, etc.)
There was somewhat of a reversal in the expectation that, after closing on the sale, there would be a period of time before I picked a property to buy. In exchange for a higher initial sales price, I accepted an arrangement where I had only three weeks to leave after closing. But I also picked out the condo much sooner and there was an arrangement to make sure funds would move properly in the split settlement with two title companies. This agreement could not have worked in a situation where a senior goes on a waiting list to get into a HUD-subsidized unit because of a special need.
There was less time to look at a large number of possible purchase properties than I had anticipated in my own mental “preview”. (This excluded looking a possibly cheaper properties in other cities — unless I went through the complications of living in an extended stay place for a while and keeping everything in storage.) You normally can’t look at a (used) property without a realtor making an appointment and generally need to have a “done deal” on your own sale first.
Condo purchase did encourage a condo property policy (which is slightly more expensive when a trust owns the condo) and security system installed by the cable company. Once again, a very distant reflection of the network neutrality debate: telecom companies should be able to tailor specific packages and service add-ons for individual consumers as long as they allow all lawful Internet content to be available for those who want it.
(Posted: Thursday, Nov. 30, 2017 at 12:30 PM EST)