Despite having taken a different approach with your children, making clear that, once they’d completed their schooling, their finances would no longer be your concern, you’re now considering offering your very talented grandson help in launching a music school. Very passionate and hard working, he’s raised quite a bit of capital on his own, but needs a big chunk of cash to renovate the building.
While you’re hardly in a position to offer any giant sum, you would like to, over the next year or so, commit a meaningful amount to the “cause.” Your own financial situation is relatively stable. Your home is paid off and in good shape. Over the last ten years, you’ve been able to manage well on retirement plan income, other investment income and social security, bringing in an occasional speaking engagement fee. The past year has been a good one, portfolio-wise, and neither of you has had any significant health issues to date. At the same time, you’re concerned that any significant financial spend, even if spread over two calendar years, might trigger an uncomfortable level of tax.
One “tack” you apparently haven’t considered is using the equity accumulated in your home as the source of funds to help your grandson ready the structure to house his school. The two of you would arrange for a reverse mortgage set up as a line of credit. Since no principal or interest payments will be required, there will be no effect on the cash flow supporting your own income needs; draws from the line of credit will be tax-free.* Meanwhile, any unused portion of your line of credit will grow at the same rate as the interest being charged on the loan.
Just as, with the passage of years, the two of you have apparently changed your thinking (about offering financial help to offspring beyond their college years), using reverse mortgage funding might be a way help your mission-driven grandson help his students “make music.”
*Please consult a tax specialist.
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
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