Financial Planning for our Intent List

The decision has been made to turn the next chapter in life for those on the Intent List, to become residents of Friendsview. Good financial planning will smooth the “glide path” toward the day the email comes that a residence is available. Just as the logistics of the physical move need planning, so do the financial considerations of one’s life. This article is written from my experience with those who have moved to Life Plan retirement communities, highlighting the most important aspects of financial planning, especially planning for payment of the Entrance Fee.

Liquidity can make the difference between having funds ready to pay the Entrance Fee (EF) for a residence and needing to wait until funds are available, i.e. the sale of the home. Begin early to plan for the sources of liquidity. One may be on the intent list for three to six years or three to six months.

Favorable sources of liquidity: (With tax planning in mind)

Cash, savings, money market funds that are insured, safe and will not lose value with a market collapse.

Selling long-term capital gain assets (stocks, mutual funds) held for more than one year, will very likely be taxed at a favorable long-term capital gain rate of 15%.

Temporarily borrow on life insurance cash value at generally low interest, immediately available and no cost or tax. Repay cash value loans at a later date.

If the EF is due in the same tax year as one turns age 70.5, the retirement plan (IRA), Required Minimum Distribution can be budgeted for some of the EF.

Roth IRAs have non-taxable withdrawals.

Less favorable sources of liquidity:

Taxable withdraws from retirement plans, IRA, 401k, 403(b), etc.

Investments held less than one year, generating short-term taxable gains.

Tax deferred fixed or variable annuities, unless they have only a small taxable gain and are passed surrender charges.

Asset preservation is important as the time to pay the EF approaches and one moves up the Intent List. Selling appreciated assets needed for the EF, usually stocks or mutual funds (with a disciplined approach) while markets are high helps lock in and preserve value. Also, reposition investments to generate income rather than growth.

If home equity is needed for Entrance Fee:

Residential home values have improved recently. A home may sell quickly enough so the proceeds can be used for the EF and only one physical move is required. But if the desired Friendsview residence becomes available and one needs to move quickly to access home equity, a plan needs to be in place months in advance to accomplish this until a home can be sold. Consider a Home Equity Line of Credit (HELOC). Apply at least six months before needed since some HELOCs may have a six month pre-payment penalty. In the case of many large banks there are no up front points as with a first mortgage, although the bank may want other accounts as well as the HELOC. The interest rate is variable and can rise over time. It is currently low, approximately 3.25% to 3.75%. There is typically no appraisal fee and only a nominal annual fee to keep the HELOC available. The HELOC will typically be approved for 70% of the home’s value. This is the amount that can be immediately accessed to pay some or all of the EF. The intent is to use the HELOC only until the house sells, then it must be repaid. The HELOC typically needs to be in place for at least six months and may not be approved if the house is already for sale. Applying for a HELOC well in advance provides a ready source of home equity liquidity if needed and can be cancelled if not needed.

“Borrow” from yourself to pay EF:

Use savings or liquid investments that can be sold to pay the EF and replace funds later after the home sells. Use funds with the lowest return first then those with the most favorable tax result when sold. These would be individual, joint, community property, or living trust accounts, not retirement plans.

Tax Planning:
Unique to a Life Plan Community is the medical care tax deduction for a portion of the EF and monthly fee presenting a tax planning opportunity. For Friendsview in 2013, the deduction was $25,900 of the EF paid in 2013 (Tax Court Method) or 24.9% of the EF (Percentage Method). A portion of the monthly fee is also deductible. This deduction cannot be carried over, so it is especially valuable in the year the EF is paid. Consult your tax advisor in advance.

Consider selling investments with taxable gains if needed for transition costs or for the EF, over more than one tax year if beneficial, especially to avoid the 3.8% Net Investment Income tax for high income tax payers.

If moving to Oregon from a state without income tax, plan for Oregon income tax, maximum 9.9%.

Investment gains or taxable withdrawals from retirement plans may cause Social Security to be taxed at a higher rate.

Risk Management:

Protect retirement assets and net worth against loss due to: uninsured medical costs, long-term care costs and claims of creditors resulting from a catastrophic auto accident.

Review insurance in each of these areas: adequate Medicare supplemental insurance including part D, evaluate if and how your long-term care policy can be used at Friendsview and carry at least a $1M umbrella liability policy as long as either spouse is driving to protect assets that have taken a lifetime of hard work to accumulate.

Estate Planning:

Consider your estate plan, important documents and planning considerations as you transition to Friendsview at this stage of life. Important documents are:

  • Durable general power of attorney (financial)
  • Health care power of attorney (health)
  • Update wills or living trusts
  • Consult a local attorney if moving to Friendsview from another state to confirm the estate plan is still effective in Oregon.
  • Be aware Oregon inheritance taxes begin on estates valued at more than $1M.

Dale and Shirley Hadley can count the reasons they drive from Portland to Friendsview on a regular basis. The current number is three; they are named Homer and Mickey Hadley and Ardys Alteneder. Given the Friendsview history on both sides of the family, which dates back to its beginnings, the decision for Dale’s and Shirley’s parents to move here came easily.

Shirley and Dale love knowing that their parents thrive in a safe and healthy environment and can live out their days with appropriate care, no matter their age. One of Dale’s grandparents lived to age 101 in the health center!

Dale recommends Friendsview’s advantages—peace of mind; good blend of economic benefit, Christian community, long-term security, sound financial “investment” to clients in his practice. For 35 years, Dale has worked in Beaverton, Oregon, as a Certified Financial Planner® (CFP), offering investment management for individuals. Shirley’s role as company bookkeeper for many years provides behind-the-scenes support. The two consider Friendsview a wise financial move, especially because of its Life Plan Community status.

Dale’s years of experience in financial and estate planning give him a solid base for advising those who intend to make Friendsview their future residence.