top of page

Add a Title

Add a Title

Add a Title

Add a Title

Info

Read more...

Add a Title

Add paragraph text. Click “Edit Text” to customize this theme across your site. You can update and reuse text themes.

Read more...

Add a Title

Add paragraph text. Click “Edit Text” to customize this theme across your site. You can update and reuse text themes.

Read more...

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

  • Writer's pictureJohn-Mark Young

The Benefits of a Sale-Leaseback Arrangement for Elderly Clients and Their Families

By a mile, the most asked question I get is, "am I ready to retire?" Retirement is technically the single largest expense you'll ever make in your life, even though in reality it is a series of many, many single different decisions one must make. And if I had to guess, the second most asked question I get is, "How do I save money on taxes?" That would then be followed somewhere in the top ten, I would like to own real estate, other than my primary residence one day, "How do I do that?". I wonder if there is a transaction that combines elements of all three: smart retirement planning, tax reduction on income, and private real estate ownership? One such answer (of many) could be the sale-leaseback arrangement within families.


As we age, our financial needs and priorities often shift, especially for elderly individuals who may be living on a fixed income or have accumulated substantial home equity. One innovative financial option that elderly clients and their families could consider is a sale-leaseback arrangement. This unique financial tool offers several benefits for seniors and their loved ones, providing financial stability, peace of mind, and the opportunity to enjoy their golden years to the fullest.


What is a Sale-Leaseback?

A sale-leaseback is a financial transaction in which an individual, typically an elderly homeowner, sells their property to a third party, many times a family member like a child, and then leases it back immediately. In essence, they become a tenant in their own home. This arrangement allows the homeowner to access the equity tied up in their property while continuing to live in the same place. Many times the lease allows the tenant the right to live in the property for the rest of their life.


Here are some of the common reasons why elderly clients might consider a sale-leaseback with their family:


Unlocking Home Equity

One of the most significant advantages of a sale-leaseback arrangement is that it provides immediate access to the equity built up in the property. This can be a valuable source of funds for seniors who have limited income and substantial home equity but do not want to sell their home outright. These funds can be used to cover healthcare costs, home improvements, travel, or to enhance their quality of life in retirement.


Additionally, this extra cash can help with the sequence of return risks that so often create havoc for retirees during their golden years. For example, someone who is unlucky and must start withdrawing their portfolio right into a negative market that takes too many years to recover from would face the unfortunate reality that they are withdrawing funds at -10%, -20%, -30% values that can lead to much faster depletion of assets than would otherwise be realized. Hopefully, your Financial Advisor has hedged your portfolio in a way to help offset some of this risk but it is still a reality for most retirees.


Financial Security

For many elderly individuals, the cost of maintaining a home can become burdensome. Property taxes, maintenance, and unexpected repairs can strain a fixed income. By selling their property and leasing it back, seniors can free themselves from the financial responsibilities of homeownership. They can budget more effectively, knowing exactly how much they'll pay in rent each month, which can provide a greater sense of financial security.


Aging in Place or Emotional Ties to Property

Seniors who are emotionally attached to their homes may be hesitant to move to assisted living or other retirement communities. A sale-leaseback allows them to continue living in the comfort of their own home while also providing access to funds they may need for in-home care or renovations to make their living space more accessible as they age.


Many families have had properties that for generations have been in the family. If this is the case the sale-leaseback scenario provides a confirmation, should the property be sold to a member of the family, that it will remain in the family for another generation.


Simplified Estate Planning

A sale-leaseback can be an excellent estate planning tool. By converting home equity into liquid assets, individuals can ensure a smoother transfer of wealth to their heirs. It can also help reduce the complexity of estate planning by simplifying the division of assets among beneficiaries.


Tax Advantages

In some cases, a sale-leaseback arrangement can offer potential tax benefits. It's essential to consult with a tax advisor, like our in-house CPA Kage Rush, to understand how this option may impact your specific financial situation. Let me give a quick example of how one might benefit from the sale-leaseback, within a family structure


Example - Susie (Mother) & Johnny (Son)

Susie who is 80 and a widow owns a $200,000 home. She also has a $2,000 monthly Social Security benefit and $300,000 in investment assets. She needs $4,000 / month which he investments and Social Security comfortably provide for her. She decides it would be in her best interest to sell her home to her son Johnny who will rent the property back to her for $1,500 / month (not quite market rent because a standard rule landlords will use is 1% of value, each month) but hey, it is Johnny's mother. Now Johnny, as the property owner will handle all the maintenance and upkeep going forward for his mother. Johnny is a Dave Ramsey and Ramsey Solutions fan so he has the cash and purchases his mother's home with no debt.


If Susie were to earn 5.50% on those dollars (current yield on a 6-month Treasury bond) received from the sale of the home, the money would pay for the rent for 17 years or until she is 97. If she took more risk and built a structured note with a 50% S&P 500 Protection on the principal and 40% protection on the coupon payments, with a European style execution (which means she receives a loss if the S&P 500 is down 50% on the contract end date typically 5 years in the future), those typically pay around 8.00% and it would last somewhere around 27.5 years. Every investment decision should be made with the help of a qualified investment professional and with a full understanding of your entire financial situation


Johnny receives the $1,500 but is able to depreciate the value of the property, write off the expenses, and also possibly have other business write-offs for expenses while managing his mother's property. If his mother had lived to 97 then he would have been paid $309,000 ($200,000 plus the interest it earned at the 5.5% rate), some of it not taxable because of the right-offs and he would own her $200,000 house that could have appreciated to $281,000 (2% appreciation rate). As a general rule, investment properties that take deductions have that reflected in their cost basis, so Johnny may have to pay the taxes back when he sells the property unless he does a 1031 exchange, which I have written about in the past. As mentioned above, I am not a tax advisor or CPA, thus we would highly recommend you discuss everything mentioned above with your tax professional.


Flexibility

Sale-leaseback agreements can be customized to fit the needs and preferences of the elderly client and their family. The terms of the lease, including the duration and monthly rent, can be negotiated, providing flexibility and peace of mind. But this also provides one of the greatest risks of a sale-leaseback transaction as well. The IRS will more than likely audit a transaction like this involving family members. Thus one should use excellent legal counsel, a trusted realtor to ensure proper value is given to the buyer and seller and your tax professional, whom will most likely be helping you when the IRS comes knocking.


Another possible drawback could be that some states provide a spouse that enters a nursing home the ability to not have to use all their assets before Medicaid kicks in, so as to not improvish the non-nursing home-bound spouse. The husband goes into the nursing home and you don't want the wife to be left with nothing if the husband stays there too long. Many times it's a level of assets and the primary residence however if there is no primary residence because those assets are now in a liquid form (investments, savings, checking) then it would require the remaining spouse to not have a home that was paid for and providing housing utility for them. All this to say, I'm not an estate planning attorney nor an elder law attorney, so as discussed above, one should consult the entirety of their professional advisor team before making such large financial decisions.



For elderly clients and their families, a sale-leaseback arrangement can be an attractive financial option that offers multiple benefits along with some drawbacks. It allows seniors to access their home equity, provides financial security, and enables them to age in place comfortably. Additionally, it simplifies estate planning and offers flexibility in tailoring the agreement to individual needs. However, it's essential to approach a sale-leaseback with careful consideration and seek guidance from financial advisors and legal professionals experienced in such transactions. While the benefits can be substantial, it's crucial to thoroughly understand the terms and potential implications before entering into a sale-leaseback agreement. With the right guidance and planning, this innovative financial concept can help elderly clients and their families enjoy a more comfortable and financially secure retirement.

Recent Posts

See All

Comments


Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

bottom of page