Reverse mortgages usually are not top of mind when people initially create their estate plan. Reverse mortgages tend to occur later in life. That’s why many people do not know how to deal with a reverse mortgages when it comes to their estate plans down the road.
Estate planning attorney Bill Henry explains how reverse mortgages are handled within your estate plan.
Questions about a Reverse Mortgage?
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How to Handle a Reverse Mortgage in Your Estate Plan
While it may sound complicated, it’s actually easier than you think. In most cases, a reverse mortgage can just be though of as a debt – a debt that doesn’t have to be paid until you pass away.
What is a Reverse Mortgage?
A reverse mortgage is a loan against the property. It does not have to be repaid until the person who takes out the reverse mortgage passes away or sells the property.
Your Options with a Reverse Mortgage
Sell the Home after Death
Let’s say your house is worth $300,000. At the time of your death, the balance on the reverse mortgage is $100,000.
When your personal representative sells your house, there will be equity to gain. One-hundred-thousand-dollars will be used to pay off the reverse mortgage, and the remainder of the equity – $200,000 – goes to your heirs.
As you can see, a reverse mortgage is really no different than a loan against the house, and it really won’t affect your estate plan.
Limitations with a Sale
Whether the personal representative can sell the house depends on the contract of the reverse mortgage. So it’s important to closely review the reverse mortgage contract.
Place the Home in a Trust
If you consider placing the home into a trust, you could probably think about a revocable trust.
If you are weighing an irrevocable trust as an option, you should be very careful. There are very specific rules surrounding irrevocable trusts.
Reverse Mortgage Company Review
The company that gave you the reverse mortgage will review the irrevocable trust. So, we do not suggest you transfer your home into an irrevocable trust without first consulting an attorney.
Gift the Home after Death
You could potentially gift the house through a joint tendency upon your death. And, if the property is in your will, it transfer that way.
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