Tips for Navigating the Financial Impact of Moving to Luxury Senior Living

Selling their primary residence and managing their assets as they transition to a new living situation can be a complicated endeavor – and often a costly one. Taxes on capital gains, estates, and inheritances can all take a sizable bite out of a senior’s net worth. Fortunately, there are several options available to help reduce those taxes on older adults and their beneficiaries.

Markelle Luke, an Edward Jones Financial Advisor in Lodi, California, recommends consulting with a retirement planner to estimate the future costs of senior living. This can help you plan your annual budget and manage your assets effectively.

“The first step is to look at a person’s overall portfolio,” Luke says. “This means not just the value of the primary residence they might be moving from, but all their other properties, investments, and assets as well. This way they can see and compare what the taxable impact will be of any sale or divestment they make and adjust accordingly.”

For example, if someone bought a property for $2 million that is now worth $7 million, most of their capital gain of $5 million will be subject to the current capital gains tax rate of 15-20%. This could cost them up to $1 million in taxes when they sell.

In addition, the estate tax exemption is set to drop in 2026 from about $13 million to roughly $6 million. To use the same example as above, a property worth $7 million upon the owner’s death would be subject to a federal estate tax anywhere between 18-40% – potentially a sizable amount. And this is before factoring in any potential inheritance tax that beneficiaries would be responsible for. (At present, six states impose an inheritance tax.)

So, when managing your assets as you prepare to move to senior assisted living, you and your retirement financial advisor will want to consider how best to navigate the capital gains, estate, and inheritance taxes so that the financial impact on you and your beneficiaries is minimized.

Here are some tips on how to navigate the most common tax consequences. As always, be sure to consult with a financial advisor before making any significant decisions about your assets and investments – the tips outlined below are meant to be helpful and informative but should not serve as a substitute for professional financial advice.

Navigating the capital gains tax

A capital gains tax is a tax on the profit from the sale of an asset or home. The capital gains tax rate usually ranges from 15-20%. Because seniors have often owned their homes and other assets for significant periods of time, the appreciated value of these assets tends to be substantially higher than at the time of purchase, creating a higher taxable capital gain.

Some profits are exempt from the capital gains tax. For example, a primary residence where a seller has lived for two of the last five years that is sold for a profit of under $250,000 for single tax filers, or under $500,000 for joint tax filers, is not subject to the capital gains tax. But for most asset sales, the capital gains tax will apply, reducing the profit of any sale.

Older adults and their financial advisors have several options available to them for avoiding capital gains tax payments, or at least minimizing the tax’s impact.

Opportunity Zone Funds (OZ Funds) allow investors to defer capital gains taxes by investing these gains in low-income or undercapitalized communities.

An Opportunity Zone is a designated geographical area identified by state governors and the U.S. Department of the Treasury as being in need of economic revitalization. Investors can defer their capital gains taxes by reinvesting the realized gains from the sale of an asset into an OZ Fund within 180 days. OZ Funds are typically structured as a partnership or corporation, and they can invest in a variety of assets including real estate development, renovation, business start-ups, and expansions of existing businesses. However, an OZ Fund must invest 90% of its funds in qualified assets, and these cannot include certain “sin” businesses such as tanning salons, massage parlors, and liquor stores.

The tax benefits derived from an OZ Fund depend on the length of the investment. If the OZ Fund investment is held for at least five years, there is a 10% exclusion of the deferred gain. If held for seven years, there is a 15% exclusion. If the OZ Fund investment is held for at least 10 years, any gains from the investment itself are tax-free.

Another way for seniors planning to move into a luxury assisted living community to avoid the capital gains tax is to retain their assets and seek ways to turn them into sources of income. For example, an older adult could retain ownership of a primary or vacation residence and turn it into a rental property, which would provide a steady income stream while also avoiding the capital gains tax.

Navigating the estate tax

When a person dies, their assets generally become property of their estate. Assets can include everything from cash, real estate, and stocks to jewelry, vehicles, and works of art.

Federal estate taxes are currently applied to estates worth over $12.92 million, but barring new legislation by Congress, the exemption will drop to about $6 million in 2026, making the tax applicable to many more individuals. The estate tax ranges from 18-40%, so it may constitute a sizable portion of the estate. Taxes on estates are paid by the estate itself before assets are passed on to any heirs.

The most popular step seniors take to reduce the estate tax is through gifting. As of 2024, an individual can gift up to $18,000 to any number of selected beneficiaries. (This means that couples can gift up to $36,000 per beneficiary.) There’s no limit to how many beneficiaries a person can gift to per year, but they can’t gift to any given individual more than once per year.

There’s also the option of super gifting, which allows people to gift up to $90,000 per beneficiary every five years. Super gifting lets seniors distribute bigger portions of their estate, though they can’t choose to gift and super gift the same beneficiary during that five-year period.

“Gifting is an excellent way to give a portion of your estate to your beneficiaries while they’re still alive, thereby reducing the tax burden on their future inheritance,” Luke says. “But one key consideration when gifting is to make sure you’re keeping enough for your own future expenses, especially if you’re moving into a luxury senior living community.”

Placing assets in an irrevocable trust to avoid estate taxes is another smart strategy. Once placed in an irrevocable trust, assets are no longer considered part of the grantor’s taxable estate. Assets based in a trust bypass the costly and time-consuming probate process, leading to faster distribution, and no longer count as part of the benefactor’s estate, reducing the amount of inheritance subject to taxation. During the life of the trust, the grantor’s assets will be managed and distributed according to the terms laid out when the trust is created. However, the grantor cannot make any changes to the terms of the trust once it’s been created.

Coming up with an accurate forecast of your expected future living expenses is crucial when making decisions about how best to manage your estate as you move to a luxury senior living community, so you’ll want to consult closely with your financial advisors about what strategies are best for your circumstances.

Navigating the inheritance tax

In contrast to the estate tax, which is paid by the estate, the inheritance tax is paid entirely by the recipients of inherited assets.

Only six states currently impose taxes on inheritance – Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, with Iowa scheduled to fully repeal its inheritance tax by 2025. It’s important to note that even if an heir lives in one of these states, they will not owe an inheritance tax if their benefactor lived in a state that does not impose an inheritance tax.

As with the estate tax, gifting and creating trusts are excellent ways for older adults to minimize the impact of the inheritance tax for their beneficiaries.

Employing tax loss harvesting strategies

Another strategy Luke recommends for investors is getting the most value out of tax loss harvesting. Tax loss harvesting involves selling nonprofitable investments at a loss to offset or reduce capital gains taxes incurred during the sale of other assets for a profit. These sales for loss can be done before the end of the year so they can be applied to any taxes owed, but any losses from previous years can also be applied (if they haven’t been applied already).

“Every high-net-worth individual should be harvesting losses on their books to help offset any taxable gains,” Luke says. “And since there’s no expiration date on harvesting past tax losses, it’s a strategy everyone should look into when they’re considering selling off taxable assets.”

Find the right strategy for your future

As you transition to luxury senior living and plan for the future, you’ll want to make sure you and your beneficiaries retain as much value from your assets as possible. Be sure to consult closely with your retirement financial advisor to evaluate your overall portfolio, as well as your future living expenses, to find the best combination of tax and investment strategies for your situation.