|
One
of the persistent myths about reverse mortgages is that they
are only for people who are either desperate or, who are house
rich but have very limited means of support. The simple truth
is that seniors from all wealth levels are taking advantage
of these innovative loans for any number of reasons…Estate
Planning being among them.
For
most affluent individuals and families, the primary goal of
estate planning is wealth preservation & transfer, while
minimizing the impact of estate taxes. Many seniors have substantial
wealth tied up in their homes that may be subject to estate
taxes when passed on to their heirs.
The
accumulated debt of a reverse mortgage against the property
reduces its value and may therefore lower the applicable estate
tax. When the tax-free reverse mortgage proceeds are used
as a funding mechanism for an Irrevocable Life Insurance Trust
as part of an overall estate plan, they provide an effective
strategy for maximizing after-tax death benefits for heirs,
and a means for paying the likely reduced estate taxes.*
Federal
Estate Tax applies to all property an individual owns at the
time of death. The Economic Growth and Tax Relief Reconciliation
Act of 2001 seems to have made estate taxes less burdensome
because it will reduce the top estate tax rate to 45% and
raise the applicable exclusion amount sequentially to $3,500,000
by 2009. The year 2010 will see a complete repeal of estate
taxes but, they return the following year with a top rate
of 55% and an applicable exclusion amount $1,000,000 for 2011
and beyond, assuming no further changes by Congress.
Can
a Living Trust or other form of trust take out a Reverse Mortgage?
Yes, but subject to the conditions of the trust document.
The entire trust document must be made available to the lender
in order to approve the Reverse Mortgage loan and in a manner
that maintains the integrity of the trust.
Will
any other part of the homeowner's estate be responsible for
the Reverse Mortgage debt?
No. The Reverse Mortgage loan is non-recourse even if the
equity is less than the amount due.
Can
the accrued interest be used to benefit the estate?
Yes. In many instances this may be the case but you should
consult with your legal or tax advisor regarding these or
other tax implications.
Are
the proceeds of the Reverse Mortgage tax free, even if taken
as one lump sum?
Yes. But please consult with your financial advisor.
Can
the proceeds be used as a retirement or estate planning tool
to purchase annuities, life insurance, prepaid health insurance,
etc. or any combination thereof?
Yes. The use of the proceeds is at the discretion of the borrower
and/or the direction of the borrower's financial or legal
advisors. The use of the proceeds of the Reverse Mortgage
is limited to the creativity and needs of the borrower.
General
Comments.
• The Reverse Mortgage may be used
to provide funding for healthcare or medical treatment.
• It may reduce the impact of estate
taxes through the purchase of various other insurance products.
• It may maximize the legacy of estate
transfer.
• It may lower the total estate value
subject to taxes.
• It may create estate deductions
thereby enhancing the net value of the estate.
• It could provide an added element
of control to the estate plan.
• The proceeds of the Reverse Mortgage
are tax free. (Consult your financial advisor or tax attorney).
I
Home
I |
