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#177: Reverse mortgage as a coordinating link between in an estate plan


A recent health scare (fortunately, you have been pronounced fully recovered) has focused your attention on an intensive estate planning review. While you can hardly be described as “super-wealthy”, your three highest value assets are your IRA Rollover account and to pieces of real property — your own primary residence (you hope to continue living at home for the remainder of your days) and a commercial property with a combined recently appraised value of just under $2.5 million.As an early buyer of long term care insurance, you feel confident that your life pension (dating back to the days when defined pension plans were a “thing”); combined with your social security benefits and annual IRA withdrawals, will be more than sufficient to cover your present and future needs. Long divorced, you contemplate naming your granddaughter, (to whom you’ve been making annual cash gifts) as your sole heir, along with one charitable medical research organization that you would like to benefit as part of your legacy.

As part of the very intensive and insightful approach you are taking in planning your affairs, you might discuss with your legal and financial advisors the combining of three “tools”: a reverse mortgage on your residence a Charitable Remainder Unitrust funded with a contribution of your commercial property, and annual qualified charitable distributions out of IRA.

Part One (a CRUT): The ownership of your commercial property would be transferred to the medical research charity you favor, with the stipulation that annual distributions be made to your granddaughter. (These distributions would replace the annual cash gifts you’ve been making to her). Upon your death, the assets in the trust would become the property of the charity, totally eliminating any capital gains tax that might become payable if you decided to sell the property. (This tactic also protects against capital gains taxes should the laws be changed to eliminate the “step-up in basis” (as has been considered).

Part Two: a (HECM) You would take out a reverse mortgage on your residence, set up as a home equity line of credit which you could tap as needed for your own income needs. This reservoir of funds will act as a buffer against the increasing costs of your long term care insurance, as well as covering any major repairs or adaptations needed to allow “aging in place” in your home.  

Part Three: (QCDs) Because you will now be able to supplement your pension and social security income with tax-free withdrawals from home equity, you might, rather than taking your Required Minimum Distributions out of IRA each year, instead make a qualified charitable distribution to charity directly out of your IRA (you are allowed to transfer up to $105,000 a year, while satisfying your RMD requrement.)

Implementing such a “combo” plan is definitely no Do-It-Yourself project; it would involve seeking expert legal advice. You might think of it as a 3-for-1 approach to estate and charitable planning.

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).