In Estate Planning, Don’t Forget the Who and the What of Home Sweet Home

| Nov 18, 2020 | clients' legal issues, retirement and estate planning


You might say estate planning is a matter of who. Who will receive your assets after your death? Who will handle your responsibilities if you become incapacitated? Who will decide your course of medical care if you cannot decide for yourself? Who will be the recipients of your charity? Estate planning is also a matter of what, and for most people, particularly retired people, their biggest “what” is their home.

It’s no wonder that many want to consider any built-up equity in their home as part of their retirement nest egg, concedes betterment.com, urging caution when deciding whether to tap home equity to:

  • pay other debt
  • make home improvements
  • pay for vehicles
  • fund education
  • pay for medical expenses
  • pay for stock investments.

On the other hand, suggest some financial advisors, homeowners with more than 50% equity in their home can factor those dollars into a plan to pay for future care expenses. In the past, the authors note, the typical homeowner’s plan has been to remain in the family home until retirement, then downsizing into either a smaller home or a retirement community.

At Geyer Law, we urge clients to consider all their options regarding their principal residence as they contemplate not only retirement but also estate planning. How can the home equity they’ve built up serve their cash needs in retirement? Do they envision their heirs wanting to someday occupy that very home?

Options for using home equity include the following:

  1.  Refinancing the existing mortgage with the goal of either lowering monthly payments or freeing up cash. A refinance, of course, still allows for the home to remain an asset to be passed on to heirs.

2. Taking out a second mortgage (home equity loan). (It’s important to remember that, under the   new Tax Cuts and Jobs Act, unless the loan is used to buy, build, or substantially improve a home, you may not be able to deduct the interest for tax purposes.)

3.   Taking out a reverse mortgage HELOC (Home Equity Line of Credit), where you eliminate monthly payments, paying interest on only the portion used of the approved loan amount. Once the owner(s) move, or after the last owner has died, the loan comes due. Heirs have the right to buy the home from the bank.

Weighing all these wonderful options for using the equity built up in a home is an important part of both retirement planning and estate planning. You might say it’’s a matter of both how and of who!

– by Ronnie of the Rebecca W. Geyer & Associates blog team