In dedicating our efforts to providing estate planning counsel to individuals and couples, we know that choices our clients make will inevitably impact their family members. For that very reason, at Geyer Legal Group, PC, we encourage and even help arrange family conferences that involve younger generation family members to discuss options being considered by parents. Perhaps in no area of planning is it more important for children to be aware of their parents’ estate planning intentions than when there is a reverse mortgage on the parents’ home.
While there are many different reasons for accessing the equity built up in a home as a financial planning strategy, with one of the most common being to finance updates, repairs, and redesign of the home itself for parents to “age in place”, a reverse mortgage is a loan; once the parents are no longer alive and occupying the home, the heirs will be responsible for seeing that the loan is “satisfied”.
Even if the value of the home were to be less than sufficient to satisfy the loan, the heirs would have no responsibility for the deficit (a reverse mortgage is a non-recourse loan). On the other hand, should the children decide to sell the property and the proceeds exceed the amount of the mortgage debt, the heirs would keep the profit. Up until the property is sold, the heirs would be responsible for keeping the utilities turned on, the property insurance coverage maintained and the property taxes paid. If the decision is made to keep the home, the heirs might choose to refinance the home using a conventional mortgage. In any event, the heirs are going to need to stay in touch with the reverse mortgage lender. Failure to communicate with the lender could result in a foreclosure, with the heirs losing the opportunity to sell the home themselves at a greater potential profit.
Furthermore, without proper preparation, heirs may skip some of the required steps for taking over ownership of the property. From a practical standpoint, David Garrison of Mutual of Omaha points out, conversations on the topic of “what will happen with our house?” can include a convenient list of contractors their parents had used to adapt and maintain the home.
Parents can choose to “build liquidity” into their estate plan, using part of the equity in their home to actually advance funds to their heirs in the form of a gift, or to pay premiums on a life insurance policy. One useful outcome of a family conference is clarifying whether any children even want to hold on to their parents’ home once they have passed.
Reverse mortgages offer many options for seniors to improve their own lifestyles. Family conferences help ensure that there are no unexpected consequences for their children.
– by Ronnie of the Rebecca W. Geyer blog team
