Reverse Mortgage - Financial/Estate Planning Tool

Senior homeowners looking for additional liquid assets should consider utilizing the benefits of a Reverse Mortgage. These loans were created for all senior homeowners 62+ years old, and are not just for the fiscally desperate. Reverse mortgages are proving to be a very effective tool in the funding of both financial and estate plans for individuals of wealth.

While a home may hold a great deal of emotional value for a family, the reality is that, in most cases, the property is sold after the owner’s death and the assets are liquidated. The heirs are often forced to sell the property under “less than ideal” conditions. After the sale, which may drag on due to the then current conditions of the real estate market, heirs may be faced with inheritance and/or capital gains taxes on the proceeds. In the end, the net proceeds are often far less than the perceived value of the home. Through the use of proceeds from a reverse mortgage to purchase investments or insurance, one can greatly alleviate many of these issues.

A reverse mortgage must be repaid when the borrower permanently leaves the property. At death, the full value of the property would be reduced, for estate valuation for tax purposes, because the accumulated debt of the reverse mortgage would not yet have been repaid, thereby reducing the property value, which should lower any applicable estate taxation.

In addition, accrued interest in the reverse mortgage may be available as a tax deduction upon repayment of the loan (just as mortgage interest is deductible against income when repaid monthly). [NOTE – it is recommended the borrower consult a tax advisor]

When tax-free monies from a reverse mortgage are used for the purpose of funding investment products, it gives homeowners, particularly those with substantial equity built up in their homes, the comfort of having more control over their estate and assuring the legacy they leave retains its value.

If the senior homeowner uses some of the tax-free equity released from a reverse mortgage to purchase additional life insurance for their heirs, the net result would be larger death benefits for the beneficiaries without affecting the current (and many times, limited) income stream of the borrower. When the insurance policy pays the benefits to the heirs, they receive tax-free dollars. Upon the sale of the property, any equity over the reverse mortgage loan amount will be subject to estate taxes, but ultimately, still revert to the heirs. With the unknown nature of the future real estate markets, the use of a reverse mortgage provides for greater control of the legacy assets by the senior homeowner.

A reverse mortgage can offer senior homeowners the ability to strengthen their financial future by utilizing their primary residence as it continues to appreciate.

When a senior homeowner use reverse mortgage funds to purchase investments and insurance that protect their health and well being, and enhance the total worth of their estate, the value of a reverse mortgage is truly realized.

Proceeds from a reverse mortgage can be used to:

- Fund gifts and/or trusts
- Purchase Life Insurance
- Buy Long-term Care Insurance
- Reduce future estate taxes
- Purchase a vacation home or investment property
- strengthen the financial future of a senior homeowner