Will a Reverse Mortgage Help Me in Retirement?
Reverse Mortgage Can Help in Retirement

Will a Reverse Mortgage Help Me in Retirement?

It’s not uncommon for a homeowner to take out a home equity line of credit or borrow against an existing one. A reverse mortgage can provide the funds to pay some bills and stay afloat.

Another option if you’re at least 62 with a home that’s not heavily mortgaged, is to take out a reverse mortgage. A revere mortgage gives you tax-free cash. No repayments are due, until you die or move out of the house.

However, these loans are expensive. In addition, reverse mortgages aren’t for those people who want to give their home to heirs, because most or all of the home’s equity may be eaten up by the loan principal and interest.

Fed Week’s recent article entitled “Considerations for Borrowing in Retirement” explains that reverse mortgages work best for seniors who need cash, who want to stay in their homes and who have few other options.

These HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA). They let homeowners convert their home equity into cash with no monthly mortgage payments.

After getting a reverse mortgage, borrowers are still required to continue to pay property taxes and insurance. They also must maintain the home, according to FHA guidelines.

People use reverse mortgage loans to pay for home renovations, as well as medical and daily living expenses. Some homeowners who have an existing mortgage will use their reverse mortgage loan to pay off their existing mortgage and get rid of their monthly mortgage payments.

When the homeowner moves, sells the house, or passes away, the loan becomes due. If the house is held until death, heirs have the option to take out a conventional mortgage, pay off the reverse mortgage and continue to live there.

Other options include loans against your life insurance or your securities portfolio.

Ask a qualified estate planning attorney or elder law lawyer how a reverse mortgage might fit into your situation.

Learn how to protect your life savings from the cost of long-term care.

Reference: Fed Week (May 16, 2019) “Considerations for Borrowing in Retirement”

Common Asset Protection Mistakes in Titling Real Property
Asset Protection Mistakes When Taking Title to Real Property

Common Asset Protection Mistakes in Titling Real Property

Asset protection is an important consideration when deciding how to take title to real property. Title to real property must be transferred, when the asset is sold and must be cleared (free of liens or encumbrances) for the transfer to occur. This is where asset protection comes in. Unlike other real property assets, real estate ownership can take several forms which affects how well the asset is protected. Each of these forms has implications on how ownership can be transferred and can determine if they are asset-protected and also may affect how they can be financed, improved or used as collateral.

Investopedia’s article, “5 Common Methods of Holding Titles on Real Property,” looks at the ways in which to hold title to real estate property.

Joint Tenancy. This is when two or more people hold title to real estate jointly, with equal rights to enjoy the property during their lives. When one dies, their rights of ownership pass to the surviving tenant(s). The parties in the ownership need not be married or related, but any financing or use of the property for financial gain must be approved by all parties and cannot be transferred by will after one passes. Another disadvantage is that a creditor with a legal judgment to collect a debt from one of the owners, can also petition the court to divide the property and force a sale in order to collect on the judgment.

Tenancy In Common. In this situation, two or more persons hold title to real estate jointly with equal rights to enjoy the property during their lives. However, unlike joint tenancy, tenants in common hold title individually for their respective part of the property and can dispose of or encumber as they chose. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided. An owner can use the wealth created by their portion of the property, as collateral for financial transactions, and creditors can place liens only against one owner’s specific portion of the property. Any liens must be cleared for a total transfer of ownership to take place.

Tenants by Entirety. This can only be used, when the owners are legally married. This is ownership in real estate under the assumption that the couple is one person for legal purposes. The title transfers to the other in entirety, if one of the couple dies. The advantage is that no legal action is required at the death of a spouse. There’s no need for a will, and probate or other legal action isn’t necessary. Conveyance of the property must be done in total, and the property can’t be subdivided. In the case of divorce, the property converts to a tenancy in common, and one owner can transfer ownership of their respective part of the property to whomever they want.

Sole Ownership. This is ownership by an individual or entity legally capable of holding title. The main advantage to holding title as a sole owner, is the ease with which transactions can be accomplished, since no other party needs to authorize the transaction. The disadvantage is the potential for legal issues regarding the transfer of ownership, if the sole owner dies or become incapacitated. Unless there’s a will, the transfer of ownership upon death can be an issue.

Community Property. This form of ownership is by husband and wife during their marriage for property they intend to own together. Under community property, either spouse has the right to dispose of one half of the property or will it to another party. Anyone who’s lived with another person as a common-law spouse and doesn’t specifically change title to the property as sole ownership (which is legally transacted with approval by the significant other) takes the risk of having to share ownership of the property, in the absence of a legal marriage.

Community Property With the Right of Survivorship. This is a way for married couples to hold title to property. However, it is only available in Arizona, California, Nevada, Texas, and Wisconsin. It lets one spouse’s interest in community-property assets pass probate-free to the surviving spouse, in the event of death.

Entities other than individuals can hold title to real estate in its entirety. Ownership in real estate can be done as a corporation. The legal entity is a company owned by shareholders but regarded under the law as having an existence separate from those shareholders. Real estate can also be owned as a partnership, which is an association of two or more people to carry on business for profit as co-owners. Real estate also can be owned by a trust. These legal entities own the properties and are managed by a trustee on behalf of the beneficiaries. There are many benefits, such as managerial influence, financial and legal liability and tax considerations.

Learn how to maximize asset protection by taking title to real property in the best way.

Reference: Investopedia (April 10, 2018) “5 Common Methods of Holding Titles on Real Property”

Use a Trust to Protect an Inheritance
Use a Trust to Protect a Loved One's Inheritance

Use a Trust to Protect an Inheritance

A recent Kiplinger article asks: “Is Your Beneficiary Ready to Receive Money?” Should you use a trust to protect a loved one’s inheritance? Absolutely. A trust is a common tool used to protect an inheritance for a beneficiary who is not ready to handle it. Not everyone will be mentally or emotionally prepared for the money you wish to leave them. Here are some things to consider:

The Beneficiary’s Age. Children under 18 years old cannot sign legal contracts. Without some planning, the court will take custody of the funds on the child’s behalf. This could occur via custody accounts, protective orders or conservatorships. If this happens, there’s little control over how the money will be used. The conservatorship will usually end and the funds be paid to the child, when they become an adult. Giving significant financial resources to a young adult who’s not ready for the responsibility, often ends in disaster. Work with an estate planning attorney to find a solution to avoid this result.

The Beneficiary’s Lifestyle. There are many other circumstances for which you need to consider and plan. These include the following:

  • A beneficiary with a substance abuse or gambling problem;
  • A beneficiary and her inheritance winds up in an abusive relationship;
  • A beneficiary is sued;
  • A beneficiary is going through a divorce;
  • A beneficiary has a disability; and
  • A beneficiary who’s unable to manage assets.

All of these issues can be addressed, with the aid of an estate planning attorney. A testamentary trust can be created to make certain that minors (and adults who just may not be ready) don’t get money too soon, while also making sure they have funds available to help with school, health care and life expenses.

Who Will Manage the Trust? Every trust must have a trustee. Find a person who is willing to do the work. You can also engage a professional trust company for larger trusts. The trustee will distribute funds, only in the ways you’ve instructed. Conditions can include getting an education, or using the money for a home or for substance abuse rehab.

Estate Plan Review. Review your estate plan after major life events or every few years. Talk to a qualified estate planning attorney to make the process easier and to be certain that your money goes to the right people at the right time.

Learn how to use a trust to protect a child’s inheritance.

Reference: Kiplinger (April 1, 2019) “Is Your Beneficiary Ready to Receive Money?”

Resources: Fidelity Investments – What Is A Trust?