As our attorneys at Geyer Law discuss with clients the wisdom of using a reverse mortgage as part of their retirement planning, it’s important to go over the different ways in which a reverse mortgage loan may fit into their estate plan. The big question is – “Is it going to be important to your children to inherit your house after you pass away?”
There are a variety of reasons parents might choose to use a reverse mortgage, including avoiding draining their retirement portfolios while the stock market is down, deferring the claiming of social security benefits, or helping pay for needed updates and repairs on the house itself.
We sometimes see seniors using reverse mortgages when they choose to relocate in order to be closer to children and grandchildren. Using a HECM (Home Equity Conversion Mortgage) for Purchase allows them to buy a new home or condo without taking on a monthly mortgage payment.
Whatever the motivation for the reverse mortgage transaction, the loan is going to need to be repaid once the owners are no longer occupying the home. One estate planning strategy is to have the parents use a portion of the proceeds of the reverse mortgage itself to purchase life insurance payable to their children, providing the means for the children to repay the loan and recover ownership of the home.
Those heirs will have six months to pay off the loan or refinance the home with a conventional mortgage. Since a reverse mortgage is a non-recourse loan, they won’t need to pay the difference if the home appraises for less than the amount of the debt.
At Rebecca W. Geyer & Associates, we’re dedicated to providing in-depth counseling to individuals and families to accomplish practical estate planning solutions. We emphasize the word “families”, because we encourage and even help arrange family conferences that involve younger family members in the discussion of tactics being considered by the parents.
Reverse mortgages can help seniors improve their own lifestyles, but it’s important to consider multi-generational needs and goals..
– by Ronnie of the Rebecca W. Geyer & Associates blog team
