Does reverse mortgage change estate planning? How? 11 Answers as of June 15, 2015

My mother is thinking about reverse mortgage. Will we the family have to substantially alter the estate and estate planning if she does? Does reverse mortgage have any other tax issues?

Ask a Local Attorney. 100% Anonymous. Free Answers.

Free Case Evaluation by a Local Lawyer: Click here
Minor, Bandonis and Haggerty, P.C.
Minor, Bandonis and Haggerty, P.C. | Brian Haggerty
This is a huge question, and should be put to a lawyer who is doing estate planning for your mother. Briefly, if she takes out a reverse mortgage, you need to decide whether the family will let the house go when she passes away, or pay the mortgage. The mortgage will have to be paid after she passes away; there are deadlines, and while there are extensions available, essentially the mortgage has to be paid within a relatively short period of time after your mother passes. There will be very little time to get the house ready for sale and get it sold. There are always tax issues; these should be discussed with your mother's tax advisor.
Answer Applies to: Oregon
Replied: 6/15/2015
Ronald K. Nims LLC | Ronald K. Nims
In a reverse mortgage, the lender will get the house. ?If the money borrowed is more than was paid for the house, it will be treated as a profit on the sale of the house, when the lender takes it over. ?It simplifies the estate plan because the heirs won't inherit the house, it will be gone. ? The max that can be borrowed on a reverse mortgage is, after the closing costs, around 45% of the appraised value for a 62 year old. ?As one ages, the amount goes down significantly. ?So, the owner is selling a $200,000 house for $90,000. ?The older the owner is the lower the borrowing limit, after closing costs, a 70 year old couple would only get 20% or so. ?Selling a $200,000 house for $40,000 isn't very attractive. ?? A reverse mortgage should only be considered if the couple is likely to stay in the house for many years. ?If the couple is considering a move out of state or to an elder community, they should sell the house, the buyer will pay full price for the house while a reverse mortgage will only give them a fraction of the value. ?A single person is never a good candidate for a reverse mortgage, it's too likely that they will lose the house in a short time. ?Obviously, reverse mortgages only make sense for younger retirees, a couple of 63 year olds might live in the house for 20 or more years.
Answer Applies to: Ohio
Replied: 6/15/2015
Law Offices of George H. Shers | George H. Shers
Since there are several different ways reverse mortgages can be set up, you have to tell us what terms she is looking at. ?More importantly, it is her home and her decision as to what she wants to do and not the family's. ?She should be asking and not you.
Answer Applies to: California
Replied: 6/15/2015
Sebby Law Office
Sebby Law Office | Jayne Sebby
It is my understanding that at the time of the owner's death, the property is automatically transferred to the lender. Therefore, it would no longer be part of the estate. Check with an accountant or tax expert about the tax implications.
Answer Applies to: Nebraska
Replied: 6/12/2015
James T. Weiner & Associates, P.C.
James T. Weiner & Associates, P.C. | James T. Weiner
It will not substantially alter an estate plan EXCEPT you must realize that the loan must be paid back upon her death so unless there are other assets it is likely the house must be sold to pay it back.
Answer Applies to: Michigan
Replied: 6/12/2015
    Polsinelli Shughart PC | William B. Prugh
    Your questions are good ones but far too advanced for this forum, given that we know no facts about her estate. Consult a tax preparer, CPA, or better yet an estate planner or financial planner to get the answers you need. But, in general, a mortgage on real property may reduce the gain on the sale of the property, if there is any.
    Answer Applies to: Missouri
    Replied: 6/12/2015
    Law Office of Pamela Braynon | Pamela Y. Braynon
    No matter that it is titled reverse mortgage, it is still a mortgage and must be paid back eventually. Taxes will be paid as any other mortgage is paid off, if the property is sold there is a capital gains tax that must be paid.
    Answer Applies to: Florida
    Replied: 6/12/2015
    Wellerstein Law Group, P.C.
    Wellerstein Law Group, P.C. | Elisha Wellerstein
    With a reverse mortgage, you mother is essentially taking a loan on her home that will have to be paid back at the time of her passing or when the house is sold. The estate will have to cover that debt with either the underlying assets or other available assets.
    Answer Applies to: New York
    Replied: 6/12/2015
    Goldsmith & Guymon
    Goldsmith & Guymon | Dara Goldsmith
    It really depends upon how the house is treated in the plan. I suggest she speak with her estate planning attorney. Best of luck to you and her.
    Answer Applies to: Nevada
    Replied: 6/12/2015
    Ashcraft & Ashcraft, Ltd.
    Ashcraft & Ashcraft, Ltd. | Randall C. Romei
    With a reverse mortgage the mortgage must be paid off promptly after death of the borrower. This usually requires the prompt sale of the property. All accrued interest on the reverse mortgage is paid at the time the reverse mortgage is paid off. This will reduce the net proceeds in your mother's estate. She must examine how the reduced estate affects her estate plan.
    Answer Applies to: Illinois
    Replied: 6/12/2015
    Attorney At Law | James G. Maguire
    If she does the reverse mortgage, the only thing that will change is that when she dies or permanently leaves the house, the mortgage has to be repaid. There are no tax consequences.
    Answer Applies to: Louisiana
    Replied: 6/12/2015
Click to View More Answers: