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Should I stay or should I go?

The pros and cons of downsizing in Silicon Valley

Joanne is 81 years old, widowed and living by herself in the same three-bedroom, three-bath house on the quarter-acre lot in Menlo Park that she moved into 28 years ago to raise her family. She'd like to move to a smaller, more manageable condominium, but like many older homeowners occupying houses now too large for them, the financial complexities and uncertainties of making a move in such a competitive real estate market have held her back.

She's worried that she will be outbid by buyers who can afford to make all-cash offers, leaving her to the vagaries of the rental housing market.

"If this were a normal market, it would be different," said Joanne, who asked that her real name not be used to protect her privacy.

She's also worried about incurring huge capital gains taxes if she sells.

"Some people would say, 'Who cares?' But if you're trying to leave something for your children, that's a big issue," Joanne said.

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Retired middle-school teacher Sue Smith, 74, also is pondering whether to move out of the San Carlos home she's lived in for the past 35 years. Over the past three years, she's made the rounds of local retirement communities, identifying affordable places where she can continue her independent lifestyle — volunteer and church activities, book club — and have care available in the event she needs it. Yet, she's also put off downsizing.

"The stumbling block for me is the cleaning out — there's stuff everywhere," said Smith, who has decided to stay put for now.

Brian Cairney, a Realtor at Kerwin & Associates in Menlo Park and founder of the Active Boomers Seminar Series aimed at older adults thinking about downsizing, said these are common financial and emotional considerations.

"I work with a lot of families in this area, and the majority of people say they want to age in place," said Cairney, who has held three seminars since last fall, including one in the spring that Joanne attended with about one dozen other baby boomers. "We live in a unique place in America. This is a place where people come to retire, and most people don't want to leave."

While remaining in the family home can sometimes work well, he cautioned that older homeowners should at least be aware of the "financial and emotional triggers" that could signal it's time to make a move.

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He said, for example, a spouse's death could trigger a step-up in a home's tax basis. The surviving spouse could avoid capital gains tax by selling the home.

"Don't let circumstances make your decision for you — have a plan in place," he advised.

Palo Alto Realtor Nancy Goldcamp, who is a frequent speaker at the annual housing conferences organized by senior services agency Avenidas, had similar advice.

"Gather concrete information rather than just saying in your mind, 'Oh, the capital gains tax is a killer,'" she said.

When people actually run the numbers, the capital gains tax sometimes is not as bad as they expect, she said. Alternatively, there are legal ways, such as charitable annuity trusts, to bypass certain taxes.

There's also a Realtor-sponsored initiative that recently gained enough voter signatures to become eligible for California's November ballot that seeks to remove another tax barrier for older homeowners wishing to relocate.

The measure, known as the "Property Tax Fairness Initiative," would allow property owners who are 55 or older or disabled to transfer their current property tax basis to replacement homes anywhere in California. Currently, under Propositions 60 and 90 — passed in 1986 and 1988 — older homeowners can transfer their property tax basis only to a handful of cooperating counties, including Santa Clara, San Mateo, Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Tuolumne and Ventura. (El Dorado County's participation is set to expire Nov. 7.)

The new initiative also would remove restrictions that limit transfers to one time only and require that replacement homes be of equal or lesser value than the original home.

She said downsizing isn't the only option for seniors who find themselves in homes that suddenly seem to be too big. She's worked with several seniors who have stayed at home and created new income streams — and companionship — by renting out extra space they no longer use.

"It can take years for people to make these decisions," Goldcamp said. "I've worked with people for as long as five years before they actually move. The important thing is to make an informed decision, because once you sell your house, you really can't unsell it."

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Should I stay or should I go?

The pros and cons of downsizing in Silicon Valley

by / Palo Alto Weekly

Uploaded: Sat, Jun 2, 2018, 8:38 am
Updated: Mon, Jun 4, 2018, 8:10 am

Joanne is 81 years old, widowed and living by herself in the same three-bedroom, three-bath house on the quarter-acre lot in Menlo Park that she moved into 28 years ago to raise her family. She'd like to move to a smaller, more manageable condominium, but like many older homeowners occupying houses now too large for them, the financial complexities and uncertainties of making a move in such a competitive real estate market have held her back.

She's worried that she will be outbid by buyers who can afford to make all-cash offers, leaving her to the vagaries of the rental housing market.

"If this were a normal market, it would be different," said Joanne, who asked that her real name not be used to protect her privacy.

She's also worried about incurring huge capital gains taxes if she sells.

"Some people would say, 'Who cares?' But if you're trying to leave something for your children, that's a big issue," Joanne said.

Retired middle-school teacher Sue Smith, 74, also is pondering whether to move out of the San Carlos home she's lived in for the past 35 years. Over the past three years, she's made the rounds of local retirement communities, identifying affordable places where she can continue her independent lifestyle — volunteer and church activities, book club — and have care available in the event she needs it. Yet, she's also put off downsizing.

"The stumbling block for me is the cleaning out — there's stuff everywhere," said Smith, who has decided to stay put for now.

Brian Cairney, a Realtor at Kerwin & Associates in Menlo Park and founder of the Active Boomers Seminar Series aimed at older adults thinking about downsizing, said these are common financial and emotional considerations.

"I work with a lot of families in this area, and the majority of people say they want to age in place," said Cairney, who has held three seminars since last fall, including one in the spring that Joanne attended with about one dozen other baby boomers. "We live in a unique place in America. This is a place where people come to retire, and most people don't want to leave."

While remaining in the family home can sometimes work well, he cautioned that older homeowners should at least be aware of the "financial and emotional triggers" that could signal it's time to make a move.

He said, for example, a spouse's death could trigger a step-up in a home's tax basis. The surviving spouse could avoid capital gains tax by selling the home.

"Don't let circumstances make your decision for you — have a plan in place," he advised.

Palo Alto Realtor Nancy Goldcamp, who is a frequent speaker at the annual housing conferences organized by senior services agency Avenidas, had similar advice.

"Gather concrete information rather than just saying in your mind, 'Oh, the capital gains tax is a killer,'" she said.

When people actually run the numbers, the capital gains tax sometimes is not as bad as they expect, she said. Alternatively, there are legal ways, such as charitable annuity trusts, to bypass certain taxes.

There's also a Realtor-sponsored initiative that recently gained enough voter signatures to become eligible for California's November ballot that seeks to remove another tax barrier for older homeowners wishing to relocate.

The measure, known as the "Property Tax Fairness Initiative," would allow property owners who are 55 or older or disabled to transfer their current property tax basis to replacement homes anywhere in California. Currently, under Propositions 60 and 90 — passed in 1986 and 1988 — older homeowners can transfer their property tax basis only to a handful of cooperating counties, including Santa Clara, San Mateo, Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Tuolumne and Ventura. (El Dorado County's participation is set to expire Nov. 7.)

The new initiative also would remove restrictions that limit transfers to one time only and require that replacement homes be of equal or lesser value than the original home.

She said downsizing isn't the only option for seniors who find themselves in homes that suddenly seem to be too big. She's worked with several seniors who have stayed at home and created new income streams — and companionship — by renting out extra space they no longer use.

"It can take years for people to make these decisions," Goldcamp said. "I've worked with people for as long as five years before they actually move. The important thing is to make an informed decision, because once you sell your house, you really can't unsell it."

Comments

Resident
Another Palo Alto neighborhood
on Jun 2, 2018 at 10:17 am
Resident, Another Palo Alto neighborhood
on Jun 2, 2018 at 10:17 am
22 people like this

Having a family member recently widowed in late middle age and my own mother who is getting on in years I have seen how both deal with the idea of moving v staying in situ. As far as the widow is concerned, tax and finances play a big part in her decision but more than that is the fact that she has a life with friends and support circle where she lives. Although she could move nearer her children, she is well aware that she would know nobody there and having good friends and regular activities are what is helping her deal with her grief.

My mother's situation is very much the same. None of her family live nearby but she has lived there for so long that feels comfortable in her surroundings. The neighbors keep an eye on her - that she opens and shuts her blinds each day and call in when the weather is rough to make sure she has enough food/somewhere warm, etc.

Home is where the heart is and unless there is good reason to move, or even to downsize, seniors aging in place where they feel they belong is the best decision. If they really do want to move then that is fine too, but if they want to stay they should be able to do so as long as possible.

Thanks for the article.


resident
Midtown
on Jun 2, 2018 at 10:48 am
resident, Midtown
on Jun 2, 2018 at 10:48 am
49 people like this

Eliminating the capital gains tax penalty for all home sales will reduce the housing crunch in high priced cities (like most of the Bay Area). A lot of retired people are hanging on to their under used homes just because they don't want to pay or can't afford to pay the capital gains tax. I would like to see this tax eliminated even for people moving out-of-state.


Amelia
Adobe-Meadow
on Jun 2, 2018 at 2:45 pm
Amelia, Adobe-Meadow
on Jun 2, 2018 at 2:45 pm
24 people like this

Easy solution: rent out your house. Use the rent money to live in a smaller apartment somewhere else. That is what my neighbors did and they love it.


Anonymous
Duveneck/St. Francis
on Jun 2, 2018 at 4:36 pm
Anonymous, Duveneck/St. Francis
on Jun 2, 2018 at 4:36 pm
3 people like this

Some of us are in a (not) sweet spot where it would be too “expensive” to sell and buy a more suitable property(downsizing but not elderly people/ residing close by desirable elementary that would appeal to young families). Meanwhile we pay astronomical property taxes. Contemplating becoming a landlord - would rent out at a very high rate......


Good Article
Greendell/Walnut Grove
on Jun 2, 2018 at 5:07 pm
Good Article , Greendell/Walnut Grove
on Jun 2, 2018 at 5:07 pm
30 people like this

Here my email below to Chris Kenrick who wrote this article.

What is Brian Cairney's pic doing next to your article? Google lists Mr. Carney as working for one of Palo Alto's major realtors. Are you giving him some free publicity, albeit subtle? The PAW reglarly publishes "opinion" and specialty articles about senior downsizing, etc., 99% of them (that I've read) are written either by realtors or locals who present themselves as "counselors on aging" who just happen to be realtors.

Yes, qualified people need to write these articles but they also need to offer objective viewpoints. I assume you qualify by the definition of objectivity and not b/c you are a realtor. ( I googled you.)

Oh, it's a very good article. I cut out; who know when I may need it.

Gloria Pyszka
Palo Alto resident


Chill
Barron Park
on Jun 2, 2018 at 5:11 pm
Chill, Barron Park
on Jun 2, 2018 at 5:11 pm
29 people like this

The home selling "system" needs to be reformed.
Between the 1-2% of sales price you spend fixing it up to sell, the 5% brokers commission on sales price, the government transfer taxes, the 35% federal and state taxes on the capital gain, etc. - it is not necessarily true that one can sell a larger home and be able to afford something smaller but still nice in Palo Alto. And after all the fees and taxes are paid, there is certainly no going back to what you had.

I recommend the owner stay in the house or rent it out only if they can afford to procure the smaller place without selling.


Ban Mylar
Registered user
Ventura
on Jun 3, 2018 at 12:56 pm
Ban Mylar, Ventura
Registered user
on Jun 3, 2018 at 12:56 pm
18 people like this

While it certainly helps REALTORS for seniors to relocate, it may be in their best interest to age in place and increase support services as needed.

Homes can be modified to make a home better suited for seniors who want to stay.
Avenidas is a great resource.


@resident
Another Palo Alto neighborhood
on Jun 3, 2018 at 2:13 pm
@resident, Another Palo Alto neighborhood
on Jun 3, 2018 at 2:13 pm
34 people like this

"Eliminating the capital gains tax penalty for all home sales will reduce the housing crunch in high priced cities (like most of the Bay Area). A lot of retired people are hanging on to their under used homes just because they don't want to pay or can't afford to pay the capital gains tax. I would like to see this tax eliminated even for people moving out-of-state."

Lol no. You don't get to have Prop 13 and no capital gains tax on top of it. "Can't afford to pay the capital gains tax" it's a tax on the CAPITAL GAIN of your property, what's there not to afford? If you mean it makes it difficult to waltz right into another Silicon Valley home, tough, everyone else is dealing with the same problem and without the benefit of a home to sell.


CrescentParkAnon.
Crescent Park
on Jun 3, 2018 at 4:13 pm
CrescentParkAnon., Crescent Park
on Jun 3, 2018 at 4:13 pm
6 people like this

@resident - some good points, but do we want to solve a problem or not?

Is Prop 13 and the capital gains the same problem? If we are going to treat
housing as a special case, which we do already, and we do already in a way
that helps the rich and does not help the poor regardless of Prop 13 or
capital gains. Check out the research on what housing write-off does and
how it is used all over the country ... it is a major tax rip-off.

In other words for the case of housing neither Prop 13 or capital gains
taxes actually help the poor. homeless or even the middle/upper middle
classes in this area, then what is the problem?

I think the problem is that there are not enough houses on the market.
What would help better, making it possible for homeowners such as
Joane to be able to put her house on the market and expand the market
and maybe even bring down prices for those who need it, or to wait for
her to pass on, in which case if she has children she can gift the house
to them.

You have a good point, but it is an equally good and possibly more
practical argument to get the housing market a jolt and get old houses
sold and maybe upgraded to larger capacity and more tax income in the
long term, or even the medium term.

If you are going to make a quickie analysis you have to take all factors
into consideration don't you?

Personally, I think capital gains should not be a separate case, and would
be for getting rid of all special treatment around houses, but only under
certain conditions such as a much more progressive tax computation.
But this is the era of massive special treatment for the rich, and until most
people realize this is not really helping them and demand change, it is
probably going to stay that way.

It seems like what is needed is for people to be able to move out of
high demand areas to lower priced lower demand areas, and there is
an economic and development benefit to assisting with that. If that
can be computed and measured against various policies, it would help
the housing problem in Palo Alto and the Bay Area in general.


@Crescent
Another Palo Alto neighborhood
on Jun 3, 2018 at 5:09 pm
@Crescent, Another Palo Alto neighborhood
on Jun 3, 2018 at 5:09 pm
5 people like this

What would help the market is more housing construction. Ending capital gains tax on housing is just further rewarding homeowners that have blocked housing construction and caused prices to increase while being protected from the impacts due to Prop 13.


CrescentParkAnon.
Crescent Park
on Jun 3, 2018 at 5:51 pm
CrescentParkAnon., Crescent Park
on Jun 3, 2018 at 5:51 pm
8 people like this

@Crescent - it has been shown by economists that developers computer the
"sweet spot" of new housing at about 1 in 9, that is they build, in most cases,
not sure if that is exact in the Bay Area, about 1 new house for every 9 sold,
in order to maximize their profits and keep them high or increasing.

It's been said that the Bay Area is not going to build itself out of this housing
crisis, and that is what makes it such a great way for carpetbagger investors
with political connections to "manage" the real estate laws well into the future
to assure virtual monopoly. The problem is Bay Area residents are being
squeezed from all sides, and by people who are already very wealthy and
comfortable. Why does everyone have to be miserable and broke to have what
only some people praise as a "free market" ... for selfish reasons?

The so-called free market fails here, as it does in a lot of areas of the economy,
because it does not meet the needs of people ... only the needs of money, and
that money is un-productive.

Look what they are doing now, all up and down El Camino from San Mateo to
San Jose, and mostly right by the train tracks they are building condos and
townhouses. Maybe that will work out if they replace the loud trains we have
now, but this is just like how they used to put all the poor workers in conspicuously
unhealthy or unstable places. It is better than nothing, but if the market driven
developers are going to game the system, I see no reason why cities, or rather
people, residents should not vote for rent-control ... except for the large number
and power of the people in the Bay Area who have a lot of money and in order
to invest it has decided to make the lives of their neighbors miserable by
cornering the housing markets.

It is time for some kind of housing subsidy, maybe for new workers and students.
I can't point to anything, but I know workable ideas must be out there.


@Crescent
Another Palo Alto neighborhood
on Jun 3, 2018 at 6:37 pm
@Crescent, Another Palo Alto neighborhood
on Jun 3, 2018 at 6:37 pm
9 people like this

This is not a failure of the free market. Housing has been intentionally restricted and zoned to prevent new construction in the
quantities needed.

Web Link

There's plenty of data on this.

Again, rewarding homeowners for obstructing housing is not a solution. Building more homes is.


CrescentParkAnon.
Crescent Park
on Jun 3, 2018 at 8:42 pm
CrescentParkAnon., Crescent Park
on Jun 3, 2018 at 8:42 pm
1 person likes this

> Housing has been intentionally restricted and zoned to prevent new construction in the
quantities needed.

Called regulatory capture. Where do you think those zoning laws come from?


Sea Seelam Reddy
Registered user
College Terrace
on Jun 3, 2018 at 11:03 pm
Sea Seelam Reddy, College Terrace
Registered user
on Jun 3, 2018 at 11:03 pm
16 people like this

its a great situation to be in 80's, have a paid off home and friends around.

I would stay. Get help now, not later just in case.

Resepectfully.


@Crescent
Another Palo Alto neighborhood
on Jun 4, 2018 at 12:10 am
@Crescent, Another Palo Alto neighborhood
on Jun 4, 2018 at 12:10 am
2 people like this

The zoning laws come from residents. Read the report. The data is all there.


Annie
Midtown
on Jun 4, 2018 at 9:18 am
Annie, Midtown
on Jun 4, 2018 at 9:18 am
34 people like this

An important topic which unfortunately is written with very biased by input from real estate agents. People should not be making these critical life decisions based solely on input from realtors. Their self interest screams through the article.


III
Midtown
on Jun 4, 2018 at 10:10 am
III, Midtown
on Jun 4, 2018 at 10:10 am
22 people like this

Want to leave assets for your children, your home.
Want to avoid taxable events........
Per article were two of the "major issues"....
Assuming you have Family Trust properly set up properly.
Simply stay in your home. Close off a room or two.
Children will inherit property in step up cost basis.
Home worth $2mm. They inherit at todays valuation.
Can sell in a month or so, no increase in valuation, NO TAX.
There are ways to borrow some money from home value,
if that can be a prudent strategy, and in need of the assets.
Nothing is a perfect, ATM type of procedure in todays local real
estate markets. Remaining and downsizing within home can be the
most cost efficient when comes to taxable events, inheritance.
III


Rent it out, starve the schools
Registered user
Fairmeadow
on Jun 4, 2018 at 10:17 am
Rent it out, starve the schools, Fairmeadow
Registered user
on Jun 4, 2018 at 10:17 am
8 people like this

Seniors who can move should rent out their home. Then they continue to pay very low tax, while charging market-rate rents. The people that rent will be using the schools (that's who moves into these houses), and the schools do not get any tax bump to support these students.

I'd like to see rentals paying market-rate property tax, since they are charging market-rate rent.


Kathy Keehn
Portola Valley
on Jun 4, 2018 at 10:46 am
Kathy Keehn, Portola Valley
on Jun 4, 2018 at 10:46 am
14 people like this

When owning a home is no longer a pleasure, sell it, deal with the taxes, and move to someplace like the Sequoias where you don't have to be concerned about home repair, you can have three healthful meals a day in a lively dining room, be as active as you want in a vibrant community, have beautiful surroundings, and have more new friends than you can believe. Hire a company like Senior Moving Assistance to help with the difficult issues of downsizing and coordinating the move. Give yourself the gift of a happy, healthy life and give your children the gift of not worrying about you.


Anne
Midtown
on Jun 4, 2018 at 11:34 am
Anne, Midtown
on Jun 4, 2018 at 11:34 am
21 people like this

Hard not to notice that a real estate agent is advocating for seniors to sell their homes. She has a vested interest in encouraging home sales. The Weekly should mark this article as an advertisement; it is clearly in the pocket of the real estate industry due to ad volume.


Anne
Midtown
on Jun 4, 2018 at 11:45 am
Anne, Midtown
on Jun 4, 2018 at 11:45 am
4 people like this

Seniors can also use a reverse mortgage to keep the home and have plenty of money. Interest on the reverse mortgage, depending on how much capital is needed, could be less than capital gains on a sale, and preserve the family home for heirs.


sequoiadean
Registered user
Midtown
on Jun 4, 2018 at 11:53 am
sequoiadean, Midtown
Registered user
on Jun 4, 2018 at 11:53 am
12 people like this

I agree with Kathy completely! Don't let paying capital gains taxes get in the way of the lifestyle you'd like to have as you get older. A great gift to give your children is not having to worry about you, more important than handing them money when you die.


Aging with grace and comfort is a challenge for the whole family.
Registered user
Duveneck/St. Francis
on Jun 5, 2018 at 11:26 am
Aging with grace and comfort is a challenge for the whole family., Duveneck/St. Francis
Registered user
on Jun 5, 2018 at 11:26 am
6 people like this

My parents wrestled with this question for ages...and then my beloved dad died. Mom was rattling around in their old house alone, living in a place where she had to drive everywhere at age 85. On a visit, my siblings and I realized she no longer could handle the complexities of her finances and was overwhelmed with the thought of moving, though she wanted to simplify her life.

We took her to tour some assisted living facilities with really strong social activities and opportunities for more care as she ages. We found a beautiful apartment for her. We helped her sell the house and move. Now she has a bridge club on site, a lovely group of well-educated, interesting friends to share her meals with in a dining room, opportunities for exercise and other social activities. She takes a van to theatre and symphony events and outdoor outings. she is sooooo much happier. It was a lot of work to help her with the move, but after touring she realized it really was what she wanted.

As she has aged more, her ability to adjust to change has diminished. I'm so glad she made this move while she still had good health so that she could build friendships in the new place. Those friends are now a support group for each other as they face the health challenges of aging. She still attends her old church and maintains long-time relationships, but she also has a new community that provides support she needs.

This isn't for everyone, but now that we are seeing early signs of dementia, I am so glad she is in a safe, familiar place. She wants to be as independent as possible, and her new home allows that. I'm very grateful that we were able to find a place that feels good to her.

It's true that the move was expensive and it will mean that she leaves less behind, but I think if she had stayed alone in the old house, she would have become increasingly isolated and sad. It would not have been good for her happiness or her health. Someday, I will look back and feel good that she got what she needed. I know my dad would have wanted that.


MP
Old Palo Alto
on Jun 5, 2018 at 12:13 pm
MP, Old Palo Alto
on Jun 5, 2018 at 12:13 pm
3 people like this

What happened to multigenerational living? Why it's neighbors that have to keep an eye on Mom or Dad, but not own's children?


Aging with grace and comfort is a challenge for the whole family.
Registered user
Duveneck/St. Francis
on Jun 5, 2018 at 12:24 pm
Aging with grace and comfort is a challenge for the whole family., Duveneck/St. Francis
Registered user
on Jun 5, 2018 at 12:24 pm
3 people like this

In my case, my husband's job moved us across the country. My brother's job also moved him to another state. My sister lives nearby, but Mom wanted to be independent. Mom wanted to stay in the community where she'd lived her whole life. We respected her wishes. I think each family should do what works best for their aging parent's needs and their finances.


Resident
Another Palo Alto neighborhood
on Jun 5, 2018 at 12:35 pm
Resident, Another Palo Alto neighborhood
on Jun 5, 2018 at 12:35 pm
1 person likes this

If neighbors have known an individual and they are used to borrowing tools or the occasional egg, then they are still watching out for each other. In my opinion that is much better than making a senior move to an unfamiliar area where they know nobody just so that their children can keep an eye on them. In many cases, a senior living with a family is left to their own devices all day long and may be miserable without the support from community that they left.

In my own case, my mother would be miserable living here with me for those reasons and many others.

It makes me think about my responsibility to my neighbors and I consider that I am keeping an eye on those that live around me. Passing the love around comes to mind.


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