Reverse Mortgages, Probate Liquidity and Medicaid Eligability

One of my favorite bloggers, Joel A. Schoenmeyer of the Death & Taxes Blog writes here about “the reverse mortgage probate problem and liquidity.”

A reverse mortgage results from a home owner age 62 or older converting the equity in their home into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. It can be especially useful for the home owner but, as Joel points out, a real headache for their heirs after they pass away. The payments can be used to support a standard of living – which is nice – but I think the most powerful benefit from the reverse mortgage is that the income stream is not necessarily a countable resource for Medicaid eligibility.

Joel writes:

I’ve encountered this situation in the probate context a few times recently: mom dies, reverse mortgage is now due, and guess what? The house can’t be sold because of the bad real estate market.

The bigger problem, of course, is one of estate liquidity. When a person dies, there are bills that have to be paid. Some of those bills are small, and some of them can be avoided. But certain bills can’t be avoided, and are going to cause a real headache for your survivors if you’ve left them with no liquid assets.

Which is all well-observed… Its a cost-benefit analysis really, done with the help of your financial planner and an attorney experienced in probate and Medicaid eligibility that can help determine if its a good fit for your situation. Its risky, but it may be worth it near the end.

Thanks Joel.

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