It’s ironic, those recent headlines about forgiveness of student loans, since the two of you had agreed long ago to pay for your three children’s college education (and did just that). Post Bachelor’s degree, the concept was, each child would be responsible for his or her own support. Your general estate plan directed that any assets remaining after the second one of you dies, including the value of your home) would be equally divided among the kids. You didn’t expect to ever need your children’s support, and they, in turn, were not led to expect support from you during your lifetimes. In the past couple of years, however, several things have happened to make you consider deviating from that firm set of rules.
One of your grandchildren was severely injured in a traffic accident and is expected to require years of medical care and rehabilitation; a personal injury lawsuit has been filed, but any compensation is months or years away. Meanwhile, following a very brave struggle, your daughter and son-in-law were forced out of business in a prime location and are starting to rebuild. Knowing your general outlook, neither of these families has appealed to you for help, but you simply cannot be comfortable withholding support for these two families.
While your own situation is very stable, you want to proceed with caution. The mortgage on your recently remodeled home has been completely paid off, so one option might be a home equity loan. Your living expenses are largely covered by two pensions and by social security; you rarely draw upon your investment assets, most of which are in tax-sheltered retirement account (so that only the after-tax net proceeds would be available to help your children with a meaningful lump sum gift. (you would consult your estate planning attorney about making loans that would be forgiven upon the second death, but first you need to decide what funds to use without negatively affecting your own lifestyle.).
You’ve mentioned using your housing wealth to provide the needed help for family members. Rather than taking out a home equity loan, however, you might consider using that “housing wealth” by taking out a reverse mortgage, avoiding both the need to make mortgage payment or the generation of taxable income. You could adjust your estate plan to accommodate the “early legacy” you’d be giving to two of your three children. Most important, you’d be helping these two families when your help is truly needed, yet doing that with the least affect on your own lifestyle.
Yes, it’s ironic, but sometimes, reversals in fortune can force us to reverse our thinking.
David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]
2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894