As you have seen throughout this site, people are not that good at planning ahead. I think much of it has to do with self-gratification and living in the now, and the belief that somehow things will just work out. The good news is that there is never as a good a time as now to start planning ahead with a reverse mortgage.
Why You Need to Start Planning Ahead
Over 90% of probated wills were made by someone who was 60 years old or older, per the estate planning firm Morris, Hall & Kinghorn, PLLC. The firm estimates that probate costs American families up to $2 billion per year, of which up to $1.5 billion is paid in attorneys’ fees.
51 percent of Americans age 55 to 64 don’t have wills.
Average cost for a funeral is $7,000 to $10,000.
Two new reports by the Senior Citizens League and the Social Security Administration (SSA) reveal that more than half of retirees owe, or will owe, federal income tax on their Social Security benefits.
Throw in that fact that we don’t want to think about getting sick, losing mental capacity or death because they make us uncomfortable. Putting all of that together spells disaster. I highly encourage you to think about the future and what it could mean, not only to you but to your family.
Use Funds from a Reverse Mortgage to Pay for Wills / Trusts
Wills and trusts can be an excellent idea to deal with your estate when you are gone, even if your estate is small. Fighting and lawsuits between siblings can eat up a large chunk, or even all of what was left to them. I have personally seen this in action and I am sure had the person known this was going to happen, they would have left the estate to a charity or their church instead.
If you are lacking the funds to set up a will or trust, the proceeds from a reverse mortgage could help with the setup of either of these options. However, getting a reverse mortgage just for this purpose may not be the most economical way to accomplish this.
Power of Attorney is something else to consider. If one or both borrowers have Alzheimer’s or dementia, it brings a whole new level of issues when trying to get a reverse mortgage.
If the Power of Attorney was executed prior to diagnosis, in most cases the POA can apply for the reverse on behalf of the borrower. However, if the POA was executed after the diagnosis the only option is for the family members of the borrower to get a conservatorship executed. The conservatorship goes through the court system and can take many months.
Planning with a Power of Attorney can be a smart move. However, trust is very important. Elder abuse through Power of Attorney is becoming more and more prevalent. If this is something you are considering, it is important to get several family members involved as part of checks and balances.
If you are considering getting all of these things done. I would recommend getting a trust because they usually encompass all of these things into one and cover much more.
Be Prepared for Tax Burdens with a Reverse Mortgage
Before you retire it would be a good idea to meet not only with your financial advisor but also your CPA to get a better idea as to what your income tax situation is going to look like. Due to taxes, you may end up with less than you were expecting monthly.
Large withdrawals from retirement savings can bring with it a large tax bill. Proceeds from a reverse mortgage could help cover those tax bills as well as provide supplemental tax free income to fill the gaps caused by taxes withheld.
A Reverse Mortgage Could Cover Funeral Costs
Funerals are expensive, and people want to have their life celebrated. If you were to get a reverse mortgage, you could set aside a portion of those proceeds into a savings account to cover the expense of your funeral. Another option would be to prepay for your funeral. Like the cost of the will and trust, getting a reverse mortgage just for this purpose may not be the most economical choice.