After much, much thought and back-and-forth conversations with each other, the two of you decided you definitely want to live out your lives in the home you’ve owned and lovingly cared for during the entire time of your marriage. True, there have been a few health challenges, but basically (you’re now both in your early seventies), you hope to continue to lead active lives. With the help of a contractor you’ve known for years, you have already begun the process of moving the master bedroom to the main floor. While, without cashing in most of your jointly held investment account, you don’t have the cash to finance it all, you’ve made a “wish list” of other remodeling to be accomplished over the coming three to five years. 

You have attended two or three presentations about the benefits of reverse mortgages, but have not moved forward as yet, wanting to learn more about how such a step might affect your estate planning and even your taxes. You are not sure what would happen to the house in the event one or both of you were to need to move temporarily into a healthcare facility.

Your general practice has been not to discuss financial matters with your two children; they have each proven to be very fiscally responsible, making choices that make sense for them and their mates; they’ve never asked for your help, nor have you ever needed (once each was out on his own) to offer help to them. Right now, your documents leave everything to the two of them in equal shares, and you’re wondering how a reverse mortgage might affect that.

In answer to your question about how a reverse mortgage loan might affect your taxes – it won’t, because draws on your equity are nontaxable. In terms of estate planning, here are the basics: Upon the death of a reverse mortgage borrower (in your case when the second of the two of you dies), the loan becomes due and payable. Your heirs would have the right to buy the home, sell it, or turn it over to the lender to satisfy the debt. It would make sense to talk to your children now about the options they will have.

Conversations on the key topic  of “What will happen with our house?” might include contractors you hire to adapt the home and grounds to make them suitable for ‘aging in place”, your estate planning advisor and – your children! 

https://mutualreverse.com/david-garrison

Please consult a tax specialist. Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

As a widower now into your tenth year of retirement, you have felt able to manage your financial affairs, making calm decisions about investments and lifestyle choices. Given the recent market drop, you realize you would like to be experiencing a higher degree of ‘certainty”. Your home is in good repair and has been mortgage-free for years, but you’re concerned with the rise you’re experiencing in car maintenance and gasoline costs, not to mention groceries and even in your electric bill.

Both your accounts (an IRA rollover account, out of which you just took your first mandatory withdrawal) and an individual account are invested largely in S&P 500-based managed accounts, with one or two individual stock holdings. Following a review of coverage with your insurance agent, you’re considering moving some of your investment dollars into a fixed tax-deferred annuity.* The appeal to you is that an annuity can be turned into a regular lifelong income stream, which would help fill the gap if the everyday costs of living continue to increase at an unsustainable pace.

One course of action you might consider is a reverse mortgage, utilizing a payout method known as a tenure payment. In this way you can “annuitize” your housing wealth rather than converting your investment assets into a fixed annuity. So long as you are still occupying your home, keeping up with homeowner’s insurance, property taxes, and home repairs, you would receive equal monthly mortgage payments** for the rest of your life (the concept is similar to the fixed insurance company annuities you’re considering). You might start out with a reverse mortgage line of credit, then later convert to a tenure payout, in which income payments would continue for life, regardless of changes in the value of your home, and regardless of the mortgage loan balance!

You’ll certainly want to consult your estate planning advisor before committing to such a plan, but the advantage would be keeping your investment portfolio intact, while stabilizing your monthly inflow of cash. 

Your housing wealth can be used to “steady” your future income stream,  mitigating your concerns about rising costs of living.

https://mutualreverse.com/david-garrison

*Please consult a tax specialist. **Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

While both of you have officially retired for more than seven years, you each serve as part-time adjunct professors at a local college. Both your children, neither of whom lives nearby, seem to be on a good track financially. You’ve long completed the “aging in place” renovations, and hope to spend the rest of your lives exactly where you now live.

Each year you have funded a scholarship, awarded to a deserving student in the health sciences field. You feel ready to make a larger – and a longer term – impact, but are wary of overtaxing your jointly held investment portfolio.

Truth is, you’re less concerned with leaving money to your sons as you are with remaining self sufficient in case of future health setbacks. You’ve been discussing this for a while, and realized that in essence, your desire is to make a positive impact in the field of health science without your own future security being negatively impacted.

One idea under consideration has been refinancing the home (which you know has appreciated greatly over the past few years), using the money to make a one-time meaningful gift in the form of an endowment to the college, out of which the annual scholarships would be taken. You like the idea of making a decisive move today, then letting the college officials choose the recipients of three or four scholarships each year. The payments on the loan would be manageable, you feel, (the tax deduction would help offset some of the debt), and you would take pride in having an endowment in your family name.

It’s possible that accessing your housing wealth in a different manner might provide a more comfortable solution. With a reverse mortgage, you would be accessing dollars to fund your endowment without taking on an obligation to make payments every month or quarter. As you’ve stated, the growth in your home value could allow you to access meaningful funding. Of course, you would continue to pay the property taxes, insurance, and maintenance costs on the home. Any portion of your equity not borrowed, meanwhile, would be credited with growth at the same rate as the interest being charge on the borrowed funds. 

Some adjustments to your estate planning will probably be needed, but using your housing wealth to endow annual scholarships can turn out to be a smart – and rewarding way to make an impact in the health sciences field.

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

https://mutualreverse.com/david-garrison

Shortly after remarrying five years ago, you took out a reverse mortgage loan on your home, using a portion of the line of credit to totally modernize and equip the kitchen (she is a gourmet cook). At the time, your wife was only 59, and, in order to guarantee her the right to continue to remain in the home should something happen to you, she was listed as an “eligible non-borrowing spouse”, even though you kept sole ownership of the property. It was explained to you at the time that if you were unable to stay in the home, she would need to keep up with the taxes, maintenance, and insurance.

While the interest rate on your loan has definitely risen since then, homes in your neighborhood have greatly appreciated in value, and you are considering refinancing the reverse mortgage. You intend to remain the sole owner of the house, but since your wife is now “age-eligible”, you’re weighing the pros and cons of making her a co-borrower on a new mortgage. 

Whether or not the appreciation in the value of your home will translate into a significantly larger available line of credit (after the costs of refinancing the loan), there is a very important advantage to be gained by refinancing the reverse mortgage loan with your wife as co-borrower. As things stand now, should you either need to move out of the home into a care facility (or die before her), she is guaranteed the right to remain in the home but cannot access funds. As an eligible borrower, in contrast, she would have the security provided by access to the equity line of credit.

Eligible co-borrowers have access to housing wealth along with housing security.

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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

In your early eighties, you feel blessed, having never needed to collect benefits from the long-term care policies on which you’ve been paying annual premiums for the past thirty years. (Concerned by yet another impending escalation in the cost of the inflation rider, three years ago you accepted an option extended to you by the insurer to “freeze” the coverage at its then level, but knew the importance of continuing the coverage.)

Now, with their own two children through with college and self-supporting, your fifty-five year old son and his wife are in the process of purchasing their own long-term care coverage and have been asking for your advice. Since a major goal for them is to have their home fully paid for and in top-notch condition prior to retiring (in ten to twelve years), they are not anxious to spend any more than needed on the insurance coverage. They have been considering an option suggested to them of buying a higher amount of coverage to begin with and forgoing an inflation rider. The two of you, on the other hand, have watched other seniors and their families struggle with the inexorably rising costs of facility and home care, and you want your son and daughter-in-law to be as prepared as possible for their future.
 

As you obviously realized when purchasing your own policies decades ago, and as Julia Kagan points out in Investopedia, “LTC insurance is typically purchased years before benefits are drawn upon, but the future costs of medical care twenty or thirty years from today may greatly exceed the policy benefit.” 

One possible approach would be to have your son and daughter-in-law not only forego the inflation rider on their policies, but also agree to longer “elimination periods” (meaning benefits might begin months following a claim rather than immediately), in order to render the premium costs more affordable.

Once they reach retirement age, having achieved the goal of having the mortgage paid and the home in good repair, that housing asset can serve as a backup plan should the need for long-term care arise. With a reverse mortgage set up as a line of credit, medical care needs that might exceed the long-term care policy coverage can be taken care of without affecting their retirement or personal investment accounts. They will be under no obligation to make monthly mortgage payments,* and the unused portion of their home equity will be credited with growth at the same rate as the interest being charged on any borrowed funds.

It makes sense for your son and daughter-in-law to set basic long-term care protection in place now (at their current ages and health status), avoiding costly policy features and riders, focusing on paying down their remaining debt before retiring. Later, their housing wealth will be accessible to help cover future long-term care needs. 

With a HECM (Home Equity Line of Credit) reverse mortgage set up as a line of credit, you will have no obligation to make monthly mortgage payments,* and will be able to “draw” on that line of credit as needed to cover expenses.  

https://mutualreverse.com/david-garrison

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

“Sisters, sisters, there were never such devoted sisters,” Bette Midler and Linda Ronstadt sang back in 2003, and the two of you embody the close-knit relationship depicted in that song…. 

When the second of your parents died, bequeathing the family home to the two of you sisters, for years you chose to use it as a rental property. Over the ensuing years, whenever one of you has faced health issues, the other has stepped up to help with meal preparation and errands, plus driving to doctor appointments. Finally, six years ago, you came to the decision to move into the property yourselves. Using a home equity line of credit (which is now almost paid off), you had some extensive remodeling done to accommodate your interests and somewhat diminished abilities. Widows both, with adult children living in other states, you have chosen to care for each other rather than moving to a retirement community or assisted living facility.

Paying household expenses has been done through a jointly held bank account, with each of you depositing a fixed amount of dollars into that account from your respective Social Security and pension money. In the process of reviewing your estate plans and health insurance coverage, it was suggested (at a seminar offered at your church) that you might consider a reverse mortgage on the home as a “buffer” against future needs.

Sharing a reverse mortgage can make a lot of sense for senior siblings sharing a home, offering each of you “housing security” should something happen that makes it difficult for the other to continue to shoulder half the financial burden. (When two people are approved to share a reverse mortgage, the mortgage remains in place until the permanent departure of the second borrower.) 

With a HECM (Home Equity Line of Credit) reverse mortgage set up as a line of credit, you will have no obligation to make monthly mortgage payments,* and will be able to “draw” on that line of credit as needed to cover expenses. Meanwhile, the unused portion of the equity will be credited with growth at the same rate as the interest being charged on the borrowed funds.

Since both of you will need to be approved as borrowers, as part of your estate planning, it will be important to give financial power of attorney to each other.

“Sisterhood is like a string that tethers you to each other for life,”  Ella Kelly wrote in “The Beauty of Sisterhood”.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender
 

https://mutualreverse.com/david-garrison

With a granddaughter diagnosed as intellectually and developmentally disabled, you have been contributing annually to the special needs trust your son and daughter-in-law established for her benefit several years back. Until last year, while you had been officially retired for a decade, both of you were earning consulting income. Those funds enabled you, without incurring debt, to redesign the family home so as to better accommodate your needs as you enter your eighties. 

For years, your granddaughter has been receiving government benefits, so that it was important for her to have funds for “extras’ without jeopardizing those “means-tested benefits”, and the special needs trust has been a great solution. 

As she has aged (now in her thirties), she’s developed several interests that you want to help her explore through private lessons in music and dance. Doing that, however, would necessitate raising your contributions to the trust by a substantial amount, and you’re reluctant to cash in investments or reduce your “reserves”, rendering yourselves less than prepared for any unexpected financial needs of your own.   

Rather than upsetting the delicate “budget balance” you’re achieved by redesigning the home while preserving your investment portfolio, and reserve funds, you might consider using your “housing wealth” to help your granddaughter pursue her new activities in music and dance. Since your plan is to “age in place”, you’ll be able to continue to enjoy your home, with no needs to make monthly mortgage payments.* In addition, the two of you will be more prepared to handle any future financial needs of your own.

Tapping into your own housing wealth might well help your granddaughter enjoy the “wealth” of dance and music’s therapeutic benefits.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

https://mutualreverse.com/david-garrison

Your husband’s receipt of an inheritance, combined with the recent sale of a piece of commercial property on your part has started the two of you thinking about upping the amount you’ve been contributing towards your grand-nieces’ college fund. (With no grandchildren of your own, you have, for the past few years, been making gifts to an Indiana 529 plan for each of your husband’s brother’s twin granddaughters, claiming the 20% state income tax credit for those education gifts.)

While you had originally talked about making 2025 joint gifts of $38,000 to each of the girls’ accounts, you read in a tax newsletter that one can “front load” 529s by putting in five years’ worth of contributions. However, even using the inheritance and the property sale profits, you’d need to sell off some jointly held investments to accomplish such a contribution, and that is causing you to weigh different factors before coming to a decision. 

Now both in your late 70s, you have enjoyed good health. At the onset of your retirement from full time employment a decade ago (you each still do some consulting work), you oversaw the completion of a major update to your home to make it more age-appropriate; it is not likely that major house-related expenses lie ahead. 

Knowing that you would still “control” the accounts and be able to use the money yourselves in case of some unforeseen turn of events or health emergency, you like the idea of letting your contributions more time to grow tax-free* inside the 529s before the girls actually begin their schooling. 

Since the 5-year Gift Tax Election allows donors to make this large contribution without affecting your lifetime gift tax exclusion; you might discuss your plan with an estate planning attorney. The total 529 “frontloaded” gift would be $19,000 per year, per beneficiary, or $95,000 for the five-year plan for each grand-niece, a total of $190,000.

Since the Federal Housing Administration has raised the national lending limit on reverse mortgages to $1,209,750, you might consider using a portion of your housing wealth to help you achieve your 529 funding goal. The unused portion of your reverse mortgage loan will continue to grow at the same rate as the interest as that being charged on the borrowed portion of your equity.

“Rerouting” a portion of the equity that has been building up in your home in the past can help you fund the two 529 plans in the present, helping your grand-nieces’ prepare for the future.

*Please consult a tax advisor. 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. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

https://mutualreverse.com/david-garrison