For most elderly clients, their home, even after the recent housing turmoil, is one of their most significant financial assets and, therefore, is a key component in any estate, financial, and related planning. The house also provides the shelter for the family and thus is an integral, and often emotional, asset for which to plan. For many elder clients, maintaining the home becomes a symbol of pride, independence and vitality. Thus, planning may be centered on maintaining a home long after it is financially or physically appropriate. There is a growing trend of seniors to remain in their homes instead of moving to a senior facility or downsizing. This is sometimes referred to as “aging in place”. As this trend grows, modifications to existing homes will become more common. Financing the improvements, maximizing the tax benefits of such improvements, and related planning, will become more important. The provisions contained in powers of attorney, revocable trusts and other estate planning documents may have to be modified to reflect the client’s wishes in this regard (e.g., perhaps prohibiting the typical broad right to sell a residence included in most durable powers of attorney). State and local programs to encourage or assist seniors to stay in their homes may be important to consider. Although houses are nearly ubiquitous in planning for clients, including the elderly, the tax laws that affect them are extremely complex, and can have a dramatic impact on the net worth of the family. This complexity has been complicated by a host of tax changes affecting home ownership, as the government has endeavored to shore up housing values and secure home ownership in light of the sub-prime crises. The complexity and change will likely be compounded in future tax legislation, which, at the time of this writing, President Obama will propose. For example, capital gains rates, especially for wealthier taxpayers will likely increase. The American Recovery and Reinvestment Act of 2009 included a host of provisions that affect planning for a home, including a residential property credit and residential energy efficient credit. Tax breaks for moderate and low income home owners will be enacted. Therefore, be certain to check the status of recent income tax changes and other programs affecting home ownership before finalizing any planning recommendation. Another caution is in order. The decisions that are optimal for income tax purposes often differ from the optimal decisions for estate planning, elder law planning, or other purposes. Practitioners must therefore understand the general rules affecting the most common transactions in which elderly engage with respect to their houses. This chapter, however, will not address elder law and Medicaid issues. Even though the focus of this chapter is the tax considerations affecting planning for an elderly client’s home, a host of facts should be ascertained prior to addressing tax issues. Comprehensive planning for the elderly client’s residence is critical, since a mere focus on tax minimization may leave the client in an untenable position. Some of these factors are:
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