Turn Assets Into Cash, But Do It Intelligently
You may have to sell of some of your loved one's assets to meet their financial needs. But you want to have a sound plan in place for what you sell and when you sell it. For every asset you sell, you gain cash, but you may lose other advantages and benefits. Consider the trade-offs carefully.
First, you want to make sure that all assets are accounted for. People often lose track of or forget about assets such as inactive bank accounts, insurance payments they're owed or security deposits. Such unclaimed assets are turned over to the state until the rightful owner claims them. Check out Allsup's unclaimed property information for instructions on how to find out if your loved one has assets you don't know about.
The first assets to consider selling are those that can be converted to cash easily such as stocks and certificates of deposit. You may owe taxes when you cash in these assets, so factor that in as you decide how much money you will gain from the sale.
Your loved one may have other assets you can sell or cash in, such as retirement accounts, a life insurance policy or a home. The consequences of selling these assets can be painful, so try to hang onto them unless circumstances are dire.
By withdrawing funds from a retirement account such as a 401(k), you give up years of tax-deferred savings that can never be replaced. You also face income tax and possible tax penalties for early withdrawal. Don't assume that you have to spend down a 401(k) for your loved one to qualify for assistance based on financial need. Many assistance programs do not count a 401(k) as an asset. So your loved one may qualify for financial help even though they still have their retirement account.
If your loved one has a life insurance policy with a cash value, you can cash it in, but you lose out on the potential death benefit.
If you're thinking about selling your loved one's home, there are a number of things to consider. Will it sell? Will you make enough money from the sale to gain the money your loved one needs? Where will your loved one live if the house is sold?
An alternative to consider is a reverse mortgage. A reverse mortgage is a type of home loan that allows you to turn the equity in a home into cash. Money from a reverse mortgage can be paid to the homeowner as a lump sum, a regular monthly cash advance or an open line of credit that lets you withdraw money when you need it.
With a reverse mortgage, the homeowner does not have to make monthly mortgage payments. The loan does not have to be repaid until the homeowner no longer lives in the home, and those reasons might include moving, selling the home or death.
On a related topic, how you go about selling your loved one's assets can affect whether they qualify for Medicaid. Medicaid is a joint federal and state program that helps with medical costs for some people with low incomes and limited resources. Medicaid programs vary from state to state, but eligibility usually is based on income and assets.
If your loved one has too many assets to qualify for Medicaid, you can spend down their assets to meet the requirements. Medicaid has rules about how to spend down assets, however. If you don't follow these rules, your loved one may not qualify for Medicaid or may have to pay a penalty. Because this area is so complex, we encourage you to consult with a qualified elder law attorney. At a minimum, you should talk with your state Medicaid office about what you can and can't do with your loved one's assets.
For additional information, visit the on-demand, online webinar produced by Allsup and the National Family Caregivers Association. And be sure to take advantage of all the resources in the financial planning toolkit.