Grandparents’ day is just around the corner. Celebrated the firstSunday after Labor Day each year, the holiday recognizes the connections we share with older generations. Part of that connection is ensuring our grandparents are cared for physically, emotionally, and financially.
Yet 13% of grandparents struggle with finances. You may know the benefits of using home equity to fund remodeling projects or cover large purchases. But it can play a crucial role in retirement, too. This GrandparentsDay let’s consider home equity for estate planning, gifting, and grandparents.
What is home equity?
Home equity is the money you have invested in your home after subtracting what you owe on it. Home equity is significant because homeowners can use it as collateral to borrow additional money for major purchases, like a car or a house, or to consolidate debt. It’s also an excellent source of income in retirement.
Home equity and estate planning
Estate planning is creating a plan for who will eventually get your assets when you pass or if you become unable to handle things on your own. Including your home in your estate plan is crucial. It may represent the largest portion of your estate.
Most retirees who own a home plan to stay there, according to a Retirement and Mortgages Survey. The survey also found that over half of homeowners aged 60 to 70 plan to leave their home to their children in their estate plan.
While it’s an excellent inheritance to pass down from one generation to the next, you may be overlooking a simple question. How will you cover the cost of renovations or modifications necessary to remain safely in your home as you age? In other words- you can use the equity in your home to stay in your home.
Home equity can help pay for improvements and modifications. For example, the funds can pay to widen doorways and lower countertops if you need to use a wheelchair or install grab bars in bathrooms to help you maintain your independence.
Can you give a gift of equity?
Retirees spend an average of $1,394 per month on housing. Considering the average Social Security benefit as of January 2022 is just $1,657 per month, that leaves little to cover other living expenses.
Nearly half of homeowners bring mortgage debt into retirement, making it difficult to access home equity to help bridge the financial gap.
Can you give grandparents the gift of home equity? Yes, you can. But you must know the potential consequences. For instance, the IRS lets you give generously up to$16,000 before hitting you with the gift tax. This is referred to the annual gift tax exclusion. In 2022, the annual gift tax exclusion for a married couple is $32,000.
The best gift for Grandparents Day
Not everyone can gift equity to their grandparents, and that’s okay. You have plenty of other options to celebrate such as working on a community service project, sharing a meal, or exploring your neighborhood.
Doing something grand for our grandparents doesn’t have to be a big ordeal. It’s the little things that count. Sometimes, a simple phone call with an “I love you” is all our grandparents need to hear.
Want to know more about how to use home equity in retirement? Discover more about how to supplement retirement with a monthly income from SixtyFive.