Reverse Mortgage for Property held in Trust

[cbird01]

Michigan - My parents have 2 goals for a lakefront property they own free and clear:

1) Get a reverse mortgage due to retirement funds running out.
2) Change property ownership or set up family trust to make sure if they got real sick and had to go into a nursing home, no one can go after the house for lack of funds to pay for treatment.

The property is currently in their name only(not in a trust yet) I am wondering how they can achieve both of these goals without one interfering with the other. ie, can they get a reverse mortgage on the property if it were held in a family trust or put into one or more of the children's names? or #2, can they put it in a trust or transfer ownership once they get a reverse mortgage on the house (without paying off the reverse mortgage)

They want to keep the home in the family and not sell it. The children will take over whatever balance is in the reverse mortgage when they pass on.

PS - I am posting another thread with more specifics on how the children will take over the house when they pass.

 

[seniorjudge]

My understanding of reverse mortgages is that each title holder must be more than 62 years of age and a human being.

A trust doesn't qualify.

http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm


Needless to say, do a LOT of investigation before y'all sign up for a reverse mortgage.

 

[tranquility]

I believe the goals are conflicting in a way which cannot be resolved. Parent's want to own something to borrow on, but not own it to be collected on.

 

[Ozark_Sophist]

When are retirement funds running out? How long are the asset look back provisions in your state?

Sell the home to the children at fair market value (too much less than FMV would affect asset look back and spend down requirements). Buy long term care insurance from proceeds.

 

[cbird01]

When are retirement funds running out? How long are the asset look back provisions in your state?

Sell the home to the children at fair market value (too much less than FMV would affect asset look back and spend down requirements). Buy long term care insurance from proceeds.

None of the children can buy the home at FMV. Two have bankruptcies, one foreclosure and the other makes $10/hr. I am the only one that can do anything...but buying at FMV is not even something I can do.

Retirement funds will be running out in 1 year. They are 70/76 and in good health. I have no idea what asset look back and spend down requirements even mean....

 

[seniorjudge]

None of the children can buy the home at FMV. Two have bankruptcies, one foreclosure and the other makes $10/hr. I am the only one that can do anything...but buying at FMV is not even something I can do.

Retirement funds will be running out in 1 year. They are 70/76 and in good health. I have no idea what asset look back and spend down requirements even mean....

Then your folks need a good, honest, and reliable financial planner.

Ask around and find them some help.

 

[cbird01]

My understanding of reverse mortgages is that each title holder must be more than 62 years of age and a human being.

A trust doesn't qualify.

http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm

Needless to say, do a LOT of investigation before y'all sign up for a reverse mortgage.

You know I have also heard there are other loans they can look at that are reverse amortization(I think it was an option ARM) Maybe better rates and less loan costs.

 

[seniorjudge]

You know I have also heard there are other loans they can look at that are reverse amortization(I think it was an option ARM) Maybe better rates and less loan costs.

I think you are talking about interest only loans.

They are very expensive and, of course, you do not build up any equity.

 

[cbird01]

I think you are talking about interest only loans.

They are very expensive and, of course, you do not build up any equity.

No, interest only loans are a normal mortgage...not reverse. I think we have established that we are not looking for a loan that builds up any equity.

 

[Ozark_Sophist]

Spend down and look back requirements come into play if one has to move into a nursing home and look to the state to provide coverage in the form of Medicaid to pay the high costs of skilled home care. As a tax-payer funded form of socialized medicine, the program looks to the assets of the individual to determine if he or she is eligible. Some people have to spend down their assets to qualify (usually by paying for the nursing home care on their own under their assets are within the financial limits).

Because taxpayers do not want to subsidizing the long term care of individuals who had assets but transferred them to others before applying for assistance, look back provisions looks back five years (depends on state) to determine what assets the individual had/has transferred. If the vacation home is sold for less than FMV to a relative, it could be said the transfer of property was intended to defraud the taxpayers who are now being asked to fund long term care.

A spouse may continue living in the marital home while the other spouse is in long term care funded by the state, but the state will look to recover expenses from the eventual sale of the marital home (after the death of both spouses).

Talk to a financial planner to determine what the best options are available to your family. It could even be possible for the parents to sell the vacation home to the children and hold the note themselves.

 

[cbird01]

Thanks Ozark...that really helped. It was my understanding that when qualifying for medicaid, they do not consider a home and one car as assets. So is it just if they sell the house without keeping assets?

 

[Ozark_Sophist]

If the lakefront home is their only home, it will not count against them for asset determination. However, the state will attach a lein against the property for all the medical expenses covered by Medicaid. Costs which will be then be recovered after the death of the last surviving spouse (or the house is sold).

 

[lwpat]

They can get the reverse mortgage and then place the house in a trust. However, I do not know how this will help you if they have to go into a nursing home. Long term care insurance is usually not available for anyone over 70. Your mother is the one most likely to need it so I would check into it now while she may still qualify. I would make an appointment for them with an elder care attorney.

 

[cbird01]

Yeah, that is what I am pushing for them to do now. I spoke to one yesterday and he said he could do some Medicaid planning such that they set their finances up in a way that they will qualify for Medicaid.