Reverse Mortgages and Inheritances

The New York Times recently reported how adult children are often against the idea of their parents using a reverse mortgage as this would deplete the asset the children would ultimately expect to inherit. However, these tools can help cover living expenses, home modifications, and elder care costs later in life, which minimizes the financial burden on family members.

Reverse mortgage borrowers can use estate planning tools to help preserve other assets for designated beneficiaries. However, possible borrowers should explore the realities with an attorney and financial planner. Borrowing with these types of loans may cause added complications for surviving heirs. According to the Times article, “Heirs either sell the house, or if the mortgage balance exceeds the home value, deed it over to the lender in lieu of foreclosure. Heirs are not responsible for any debt beyond 95 percent of the value of the house.”

Alternatively, individuals may decide not to use a reverse mortgage altogether and instead create a strategy with an elder law attorney that allows them to hold their home and other assets in trust and benefit from them.

When it comes to elder care planning, certain trusts provide some financial protection while preserving a senior’s eligibility for public benefit programs. Special needs trusts and Medicaid Asset Protection trusts are just two, and an elder law attorney can recommend other tools. Not only do these tools preserve assets, they provide creditor protection and added security in the event a senior is the victim of elder financial abuse.