MODIFY THE HOUSE, TWEAK THE ESTATE PLAN
As a lifelong do-it-yourself-er, your husband has been making plans to change several things about the home in which you’ve spent the past forty years (now that the two of you have agreed to spend your hopefully long “old age” right there. As a lifelong careful manager of the household money matters, you’re trying to work out the budgeting for the proposed changes. It’s apparent that some borrowing will be necessary, particularly since the bulk of your financial resources are in tax-deferred accounts and a couple of business rental properties that produce very little net income. You’ve been researching both second mortgage loans and reading up on reverse mortgages.
Some four years ago, as you were going over all your finances, preparing for your retirement (which happened last year), you had meetings with an estate planning lawyer and made some important decisions (creating a trust and the other documents). To ensure (hopefully) there would be no bad feelings or resentments among the sons later on, you “hosted” a special family get-together to explain your intentions. Everyone was comfortable with the idea that the only one of the three sons who lives anywhere near you (and who does not have a family or own a home) would inherit the house.
Now, as you consider a reverse mortgage to fund the “big reno,” you’re worried that you’ll need to redo the whole estate plan (so much time – and money – went into that effort…) in order to make the property division “fairer” to this one son (who would be saddled with a big loan).
Establishing a reverse mortgage line of credit to fund the aging-in-place renovations need not mean a total reworking of your estate plan. True, were you to move out of your home (or at the time when the second of you has died), dies, the reverse mortgage loan balance would need to be paid off in order for your son to keep ownership. An idea to consider would be using part of the reverse mortgage line of credit to fund a “second-to-die” life insurance policy with your third son named as beneficiary. That could provide money for him to pay off the reverse mortgage balance.
As a “lifelong careful manager of the household money matters,” you’ll agree that having a conversation with a reverse mortgage professional, an insurance agent, and your estate planning attorney” will be the right next step. That way, your husband can focus on modifying the house; the two of you can work with your lawyer to “tweak” the estate planning documents.
David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702.
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