By Wayne S. Bell (Former CA Real Estate Commissioner)
Preface:
This article was developed collaboratively, with contributions, writing, and perspectives from Jessica Solomon, who should be credited as the co-author of the piece. Jessica is a seasoned elder care consultant and real estate professional in California. While the collaborative effort enriched and enhanced the content, and the policy proposals, the legal analysis and opinions regarding the current duties of real estate agents expressed herein are solely my own. They may not necessarily reflect the views of my collaborator or others in the elder care provider community.
The following case from real life provides the foundation for the ensuing discussion and guidance.
Description of the Case:
A 97-year-old homeowner in Orange County, California decided to sell her home in order to have the money necessary to move into an assisted living community and to cover long-term expenses. She had purchased her home in the 1950s for around $50,000, and it had appreciated greatly over the succeeding years.
What neither she nor her family did was consult with a tax or legal professional, or a financial advisor. And unfortunately, no one else involved in the transaction (like the real estate agent) raised any issues about a step-up in the home’s cost basis or capital gains or other tax implications.
To be certain, using home equity from the sale of appreciated real estate to fund senior care is a common strategy, but it involves important and often complex financial, legal, and tax considerations
After the sale was finalized, the senior homeseller was blindsided by a crushing tax bill from the IRS of more than one million dollars.
When the transaction was analyzed after the fact, it became clear that the costly mistake was avoidable and could have been prevented—or at least greatly reduced—with appropriate and proactive financial/legal planning and tax advice. Had the senior homeseller and her family been informed about an applicable step-up in basis and/or an alternative way to structure the sale/transfer, the substantial tax liability could have been (as aforesaid) averted—or at least diminished.
With senior care costs rising and older adults living longer than ever, the intersection of housing, healthcare, and financial planning has never been more critical. Transitions to assisted living are largely about how that living and care will be financed and extended.
The cautionary case study above isn’t just about taxes or title transfers—it’s also a reminder of how easily a million dollars can slip away when no one is thinking about issues beyond the sale of a home.
The Issue for Discussion and Analysis (under California law):
Based on the unfortunate result that occurred as a consequence of the sale of the Orange County home, the question raised is whether the real estate agent had the responsibility or duty to alert the senior homeseller client to the possible detrimental financial implications of the sale.
The short answer is no. But more on this follows…
Before delving into duties owed by real estate agents, it should be noted that planning for senior care is often very complicated, and usually well beyond the expertise of realty licensees. Such care involves an evaluation of the type of care needed (such as assisted living, nursing home care, in-home care, etc.), how long funds will be needed, what other assets are available for the care, and whether government assistance or private insurance is or may be available.
Additionally, others in the elder care community have made the following comments relative to the case discussed above and the general issues raised, and have posed some of the following questions:
*”Where was the real estate agent in this case? More than a transaction coordinator, Realtors often serve as trusted advisors to families navigating downsizing, relocation, and aging transitions. While Realtors aren’t tax professionals, being attuned to common senior scenarios and urging clients to seek professional tax guidance should be standard practice—especially in transactions involving long-held family homes.”
*”If you’re working with older adults—whether as a care consultant, social worker, financial advisor, or Realtor—it’s time to elevate the standard of care beyond your lane. Let this be a wake-up call: Ask the questions…Encourage the second opinion.”
*”The case underscores an urgent reality for families seeking elder care across America: there is a high cost of not knowing.”
*”Most real estate agents don’t know what they don’t know — especially regarding
tax implications for aging homeowners. But there should be some financial literacy.”
*Most agents are focused on the sales transaction, and not long-term care financial planning. Seniors are a vulnerable sector of society, often financially and medically.”
*”As care costs soar and more seniors rely on home equity to fund long-term care, should real estate agents be referring senior clients to qualified tax professionals? Current real estate ethics rules, laws, and education requirements are not keeping pace with the senior demographic and the realities of the use of home equity to fund elder care.”
*”Seniors are unknowingly liquidating their homes – often their only major asset — and losing hundreds of thousands or millions in future care funding due to poor
guidance or lack of education.”
*”There should be better disclosures, with financial literacy integrated into the real estate and senior-care ecosystem. There should be training for agents serving aging clients, and a higher recognized duty when advising vulnerable populations. This is not just real estate — it’s financial protection, aging policy, and consumer rights.”
In an ideal world, educating real estate practitioners, other professionals (like lawyers), and the general population about aging and elder care would be mandated for building empathy, focusing on care issues and preparedness, and better systems of support. And the education could (or would) include financial literacy relative to the sale of homes and tax advantaged transactions. Moreover, there could be more government initiatives to educate the public on elder care, aging services, and the costs involved for the same. Also, and importantly, family conversations would be encouraged, and that would include the need to engage tax and financial planners.
But we do not live in that ideal world, and we must look at the laws and rules that exist in our imperfect world in order to give guidance.
In the case presented above, the question of whether the real estate agent breached some duty is now addressed. As mentioned above, the answer is no.
A real estate agent’s duty of due care (sometimes called the duty of care or duty to exercise reasonable skill and care) refers to the obligation an agent has to act competently and diligently when representing a client and performing services in connection with a real estate transaction.
That requires a real estate agent to do the following, among other things:
- Act competently and professionally
- Use their training, experience, and knowledge of the market, laws, and procedures.
- Avoid negligence or carelessness that could harm the client.
- Provide accurate information
- Verify material facts about a property or transaction before sharing them.
- Avoid giving false or misleading statements.
- Follow applicable laws and regulations
- Comply with State real estate laws and regulations, and disclosure requirements.
- Perform duties promptly
- Handle paperwork, communication, and transaction steps in a timely and organized way.
Beyond those general, legally required duties, special fiduciary duties are owed to the agent’s client. Such duties include:
- Loyalty: The agent must act in the client’s best interest, and ahead of their own.
- Confidentiality: The agent must keep the client’s information private.
- Obedience: The agent must follow lawful instructions from the client.
- Disclosure: The agent must tell the client all relevant facts that could affect decisions.
- Accounting: The agent must properly handle money or property belonging to the client.
But there is no existing general duty, fiduciary duty, law, or regulation in California that requires a real estate agent to probe a senior citizen as to why he or she is selling, how the senior plans to use the money, or whether he or she will use the transaction proceeds for long-term care. Stated differently, agents do not have a duty or legal mandate to investigate a senior’s personal financial motives or care plans.
However, while this type of inquiry might raise privacy issues, when selling a senior’s home, an agent can ask about and clarify the client’s goals, note possible financial and/or tax consequences, and recommend that the senior client consult with a qualified tax/financial advisor or attorney regarding the tax consequences or financial implications of the sales transaction.
Conclusion:
While there is currently no general duty, fiduciary obligation, law, or regulation in California that requires a real estate agent to question a senior citizen about their reasons for selling his or her home, their intended use of the sale proceeds, or whether those funds will be applied toward long-term care, laws and regulations can change, and lawsuits can modify practices and responsibilities.
Furthermore, and importantly, elder care advocates can argue for and advance policies supporting the imposition of a duty on real estate agents to inquire and advise senior citizens in the context of selling their homes.
Unfamiliarity with complex financial instruments often leave some seniors unable to fully assess the consequences of selling their property. Without proactive safeguards, and knowledgeable advisors, they might be unaware of tax implications, or might lose proceeds needed for long-term care.
Thus, based on the above, elder care specialists could advocate for a policy requiring real estate agents to inquire into the reasons for sale and intended use of proceeds. This would allow agents to identify possible decision-making (regarding the sale of a home) made without informed understanding of financial or care needs and/or consequences.
When seniors sell their homes without understanding how the proceeds affect their tax liabilities or long-term care affordability and sustainability, the result can be premature depletion of resources, hardship, and increased reliance on public assistance. A duty to suggest consultation with a tax advisor or financial planner serves a preventative function.
And the proposed duty would not require real estate agents to provide financial or legal advice—only to ask basic, good-faith questions and recommend that appropriate professional advice be sought. Such an obligation is consistent with an existing “Know Your Client” ethos in some other professions (e.g., banking, securities). It can be implemented with minimal cost or liability exposure and could be standardized through professional training and disclosure forms.
Finally, it would arguably promote informed decision-making and safeguard seniors, one of society’s most vulnerable populations.
Wayne, this is exactly why REALTORS® must understand the concepts even when we don’t give tax or legal advice. A simple explanation of the $250k/$500k exclusion, the 2-year window for widows, the step-up in basis, and how remarriage can change everything is often enough to protect a senior from a catastrophic mistake. We don’t need to advise—we just need to teach the basics and refer them to a qualified specialist before they sell. One conversation can save a family hundreds of thousands of dollars. That’s real fiduciary service, and I appreciate you raising the issue so clearly.