HOME EQUITY — THE SWISS ARMY KNIFE OF ESTATE PLANNING
“When it comes to wealth transfer, both givers and receivers need to be seriously strategic. John Vandergriff suggests in a Kiplinger piece With the largest wealth transfer in history beginning to take place, Vandergriff says, parents want to transfer assets as efficiently as possible, leaving heirs with a plan, not a puzzle. Communication is key, he cautions –the more buy-in parents get from their kids, the better it will be for everyone, but parents must be strategic in how they give or leave money,,.
As the two of you were discussing this article, you realized that Vandergriff’s observation that “not everyone wants their children to know about their financial situation or their distribution of assets in the same way” certainly applies in your situation. Now both in your late seventies and just very recently retired, you have been in the process of re-thinking some of your earlier estate planning decisions. You own two pieces of property — your own home and a second home in Florida. Both have been fully paid for for years. with, interestingly, a market value that is remarkably similar. Your original plan was for the two of you to move to a retirement community, allowing your younger son, who now lives with his fiancée in an apartment, to live in your home, paying “rent” and ultimately inheriting the home. The older son, who is better established financially, would inherit your “winter home”. You had not yet reached the point of sharing these plans with either of the boys.
Now, after much discussion and soul-searching, you have decided not to move, but to do what is popularly known as “aging in place”. The amount you’d set aside for the buy-in to the retirement community may or may not suffice to cover the remodel (moving master bedroom and bath to ground floor, redo HVAC and some foundation work, and you have now been weighing the benefits of a reverse mortgage, feeling grateful that you had not discussed the original plan with your sons. At the same time, you want to keep the basic estate planning concept in place, with the younger son eventually owning this home (with the option of occupying it if that is still appropriate for his life), while the older one receives the Florida property. Now that you have a general plan and numbers become clearer, you intend to find the right timing to share your intentions with both sons.
As you’ve no doubt learned, a reverse mortgage loan becomes due and payable after you have both died. As heir to the property, (your estate planning documents will have specified that he is the one to decide), your younger son will receive a due and payable notice from the lender and he can choose to sell the home (if at the time the home is worth more than the debt, he can keep the difference; if the home is worth less than the amount owed, the mortgage insurance will cover the deficit), or pay the lender (with money you will have left him in your estate plan), and move into the home.
The government-insured reverse mortgage can be a very flexible, almost Swiss-Army- Knife tool to help you make this retirement/estate planning combo work for you, and ultimately, for your sons.
https://mutualreverse.com/david-garrison
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.orgEqual Housing Lender