Long-term Care and Reverse Mortgages

According to recent statistics, 40% of the population over 65 will require some form of long-term healthcare services during their remaining lifetimes. A senior’s average stay in a professional care facility averages 2.5 years and the costs can easily exceed $90,000 annually (Similar illnesses treated in the home, supported by home-healthcare providers, can also average approximately $80,000 annually).

Most Americans recognize the need for a long-term care insurance program to both protect their assets and relieve any potential burden on their families. One major obstacle often voiced by seniors is, “How do I pay for this insurance?” Many seniors no longer have the income necessary to pay the premiums for long-term care coverage and most are not comfortable utilizing their savings for this purpose. While an individual can always ignore the issue and simply rely on the state government to provide such future care, this option may not always be the best one since seniors may be required to spend down their assets to the “poverty level” before qualifying for these government programs.

Traditionally, seniors have had three choices for funding their potential against chronic illness and professional care; self-funding these expenses with personal savings, ultimately utilizing the government programs, or purchasing insurance with existing income. Now there is a fourth choice available – taking advantage of the opportunities offered by reverse mortgage programs.

Reverse mortgages are loan programs specifically designed for senior homeowners - 62+years old. Monies from a reverse mortgage can be withdrawn, tax-free, in three different ways: as a lump-sum, as a line of credit or as a monthly distribution. While all three options will generate a mortgage lien equal to the total available funds, the latter two options provide the homeowner with the benefits of a monetary resource without the liabilities that can be associated with a liquid asset. These loan proceeds can be used to pay the premiums for Long-term Care Insurance – if the borrower qualifies for it. But for others, a reverse mortgage loan may be the only means by which a senior can help protect a significant portion of the equity in his or her home from creditors. The use of trusts, gifts LLC’s, etc., are all worth their weight in gold if established timely, but the funding of these can be an issue.

A reverse mortgage is nothing more than a lien against a primary residence. It does not require the senior homeowner to relinquish title to the property. A reverse mortgage can even be established within revocable trusts and Life Estates. A reverse mortgage loan requires no monthly repayment of interest or principal, although there are no penalties for doing so. If a senior homeowner chooses to repay any portion of the interest accruing against their borrowed funds, the payment of this interest may be deductible (just as any mortgage interest may be). A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as they live in their home. And, in some cases, the lender increases the total amount of the line of credit over time (unlike a traditional Home Equity Line whose credit limit is established at origination). If a senior homeowner stays in the property until they pass away, his or her estate valuation will be reduced by the amount of the debt.

Long-term care insurance is purchased on the basis of the value of total benefits to be provided. Through the Connecticut Long-term Care Partnership program, the amount of Medicaid asset protection is equal to the value of total benefits utilized (i.e., If all of the owner’s $250,000 CT Partnership LTC Policy benefits had been exhausted and then the policy owner filed for continued care under Medicaid, $250,000 of their assets would be exempted from Medicaid claims) . The American Homeownership and Economic Opportunity Act of 2000 (H.R.5640) signed into law on December 27, 2000, supports the use of reverse mortgage proceeds for both long term care and long-term care insurance.

When a reverse mortgage is used fund Long-term Care Insurance, the senior homeowner is using some of the equity in their house to protect the value of their home (and perhaps other assets), so they can feel more confident that their heirs will receive the legacy these seniors worked so long and hard to build.

If you feel you would benefit from a closer look at how a reverse mortgage program can be utilized, please contact me, Stephen Lamoreaux, Reverse Mortgage Specialist – call (203) 595-9610 or (800) 562-6365 x376 or email steve@dmlmortgage.com