Do you want to tap the value of your home by using a reverse mortgage during retirement? If so, you may have questions about this little-understood financial tool when it comes to estate planning. To help you make the right choices for yourself and any heirs, here are a few answers to your questions.
How Is the Mortgage Handled Within Estate Planning?
As with any other leveraged asset, your home remains part of your estate upon your death. You would include the home in your will or trust, and heirs can keep it or sell it just as they would a home with a traditional mortgage. However, you should discuss the reverse mortgage's status with your executor or other heirs so they know what to expect and can even make some decisions in advance.
Should You Cover the Mortgage in Estate Planning?
If you want to ensure that your reverse mortgage doesn't affect your heirs, you can arrange for its payoff upon your passing.
One method is to buy a life insurance policy (or increase an existing one) to cover the mortgage. This policy would kick in when you die and provide the cash for a beneficiary to pay off the reverse mortgage. A second method is to boost other investments so your heirs receive enough assets to pay off the mortgage if they wish.
How Does a Reverse Mortgage Help Heirs?
A reverse mortgage can actually help your heirs indirectly. How? First, you have cash each month that could be put to good use increasing investments that will be left to your heirs. This is particularly important if you know your heirs don't want to keep your primary home. It will continue to appreciate in value while you look after other parts of the estate.
The mortgage also allows you to take better care of yourself and your finances while you are alive. Because you receive money each month, you have more liquid cash to care for things like your health, everyday expenses, and pursuing things you enjoy. In the end, this financial stability helps protect the rest of the estate and prevent it from being drained by emergencies, bad budgeting, or rising costs.
Where Can You Learn More?
Have other questions about the effects of a reverse mortgage on your estate planning? Start by consulting with an estate planning attorney today. They will help you understand everything you need to know in order to decide how it fits into your own plans. Call to make an appointment.
