Reverse Mortgage Money Magic…

June 19, 2008 | Author dragonfly

Retirement Assets…

“Made it Ma! Top of the world! White Heat, 1949

Reverse mortgages are often portrayed as last-resort financial tools; reserved for widows and widowers who have outlived their liquid assets and have to tap the equity in their paid-for homes to survive a few more years.

Not so.

Meet Bob and Sally…

They live in a $1.2 million home in a stable neighborhood in Denver. The house is paid for.
They have three children.
All three of the children are married.
Each of the children is in a professional practice in a different city; Dalla, L.A. and Chicago.
Each child has a six figure income.
Each child has a family and has roots in their new communities.
Bob and Sally also have a significant estate and estate tax staring them in the face.

The family is close and the children return to Denver for visits on major holidays and during the ski season. None of the children is interested, however, in owning the family home or moving back to the city they grew up in.

Creative Planning and Execution…

Enter the jumbo reverse mortgage. Bob and Sally obtained a reverse mortgage of about $500,000 on their home. They used about $400,000 to buy a condo in Vail, the family’s favorite ski location. They put the property in a trust and began a gifting program that shifts their ownership to the trust and the children over several years. The additional money was used to buy a large life insurance policy on Bob that will be paid to the trust when Bob dies and fund home owner association fees, upkeep, etc. for the condo for decades to come.

The benefits:

Bob and Sally’s estate, and therefore their estate tax, is reduced because they transformed an illiquid asset into cash and transferred the cash to the condo and the condo to the trust.
The children will still have an expense free place to get together during ski season and for other family events like graduations and marriages.
In a few years, when Bob and Sally decide to move from the big house to a smaller place, they intend to sell the Denver house and use the equity retained after the reverse mortgage to buy a condo of their own in Vail. When they do, they will get another reverse mortgage on the condo and use that money to further fund the family condo or, perhaps, buy a bigger one.