Estate Planning

Long-Term Care Planning: Is a Reverse Mortgage your best option?

By Kristin L. Burrows

Recently, I heard a story about a family who used a reverse mortgage. The mother has Alzheimer's but is in great physical health. The father was in good health and was caring for the mother. The son was recently out of work and decided it would be a good time to move back to help his father care for his mother. The parents recently qualified for Medicaid, but had a reverse mortgage line of credit to help in the event of emergencies. The house is worth $175,000.00 and they owe $35,000.00 on the reverse mortgage. The parents had intended to leave their estate, which consisted primarily of the house, to their son.

The father suffered a heart attack and passed away suddenly. The mother is physically 'healthy as a horse,' as are many people who suffer from Alzheimer's, and may have many years of life left. The son, however, may not be able to provide care for her for the rest of her life.

THE PROBLEM: If the mother has to go into a nursing home and is there for over a year, the reverse mortgage will be called. The mother and son, unable to repay it, will lose the house. The mortgage company will auction or sell the house and any money left over from the sale will go back to the mother, which will kick her off Medicaid. The parents' lives of hard work to pay off their home and to have something to pass on to their loyal son may be lost in the blink of an eye.

 When the parents obtained the reverse mortgage, this term of the mortgage was probably either not clear to them, or was something that they did not take the time to think it through.

An Elder Law Attorney could have helped this family review and evaluate the reverse mortgage, as well as advise them about other planning options, to determine the best course of action to both stay at home as long as possible and to preserve their house.

For instance, Medicaid regulations allow transfers between spouses without penalty. It may have been a good option to transfer the house to the father, possibly reserving a life estate for the mother, and the father could have left the house to the son in his Will.

Second, Medicaid regulations also allow a parent to transfer a house to a child who has been living in the home and providing care for two or more years, which has kept the parent out of the nursing home. Depending how long the son is able to provide care for his mother, this may also have been an alternate option.

Reverse mortgages can be the right decision for some people. Many people wish to remain in their homes for as long as possible, rather than go to a nursing home or assisted living facility. Many of those people also have a bulk of their assets invested in their home's equity. Reverse mortgages can provide access to cash which people can use to pay for in-home care services that will help them stay in their homes longer, and that can be a very good thing. Sometimes a reverse mortgage is the only way to afford to remain in the home, but there may be other options as well. An Elder Law Attorney can advise you about those other options and help you evaluate which option is right for you.

The good news is that this family may still have some options. The mother may be able to access the line of credit to pay the son for his caregiving services. Under North Carolina's Medicaid regulations, though, the mother cannot just pay the son – they need to have a written and signed caregiver contract, and it is essential that such a contract is prepared by an Elder Law Attorney who knows the Medicaid requirements imposed on these types of contracts.

Full post as published by North Carolina Estate Planning Blog on August 31, 2010 (boomark / email).