The Disconnect Between Parent’s Inheritance Plans and Reality
One of the common objections to reverse mortgages is the homeowners’ desire to leave the home to their adult children. The strong emotional bonds are felt by both the aging parents who raised their children in the home and the childhood memories of their adult children. So how likely are adult children to keep the home they inherited? Truth be told there’s typically a disconnect between the parent’s well-intentioned plans and reality.
When Intentions Meet Reality
A Fannie Mae survey of older Americans last year confirms the common desire to pass on one’s home with 62% saying they plan to leave the home to their children or family. Not surprising since the home often represents a legacy of planning, hard work, and most importantly cherished memories. Yet, a recent Charles Schwab survey found that 70% of adult children will sell the home they inherit from their parents.
Reverse mortgage professionals know the importance of involving the homeowner’s adult children and broaching the subject of inheritance. But within families, the issue is often not discussed. The parents may plan to give their home to their heirs not considering that the property will likely be sold for cash within the first few years of their death.
The Inheritance Objection & Fact Finding
The following questions may be useful in uncovering gaps between the homeowners’ inheritance plans and the expectations of adult children.
- Have the homeowners discussed their financial situation with their children? If so, are they aware of why their parents are considering the loan in the first place?
- If the children inherit the home will they be able to maintain the property and keep the home insured and property taxes current?
- Would inheriting the home be more of a burden than a blessing?
- Are the children willing to help support their parents financially if they don’t get a reverse mortgage? Are they willing or able to provide such assistance on an ongoing basis?
- When the children are strongly resistant to a reverse mortgage it may be because they are unaware of the specifics of their parent’s financial situation. If they think “Mom or Dad are doing well so why would they need the loan in the first place?”, it would be natural for them to object.
- What’s the Plan B? If not a reverse mortgage then what other options would help them increase their monthly cash flow or access funds as needed on demand without requiring monthly payments?
- Have the homeowners considered the additional benefits of a living inheritance a reverse mortgage may provide?
A Living Inheritance
Most parents feel strongly about remaining financially independent not wanting to be a burden to their children, even if they’re well-off. Reverse mortgage borrowers who retire an existing mortgage payment or have access to a sizable nest egg from a HECM’s line of credit (available principal limit) are unlikely to require their children’s assistance. Even better, the parents may now be in the financial position to provide a living inheritance.
The benefits of passing on one’s wealth while living are numerous and include:
- Being able to see their children benefit from the gift while they’re alive.
- Assisting with family vacations, activities, or financial emergencies.
- Helping provide the cash needed for a down payment on a new home.
- Paying part or all of a grandchild’s tuition.
- Being able to make sizable contributions to their favorite charities.
- Tax planning advantages.
- Bypassing conflicts among siblings are sadly common when a family is settling their parent’s estate.
The inheritance issue is not merely an objection or an obstacle to be overcome. It’s an opportunity for increased family transparency, planning, and weighing long-lasting and realistic options for both parents and children alike.
Shannon Hicks
Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
7 Comments
Absolutely right on point! Great article with extremely useful bullet points.
Thanks
Many thanks, Steve! I’m glad you found it useful!
Very good, thanks Shannon.
Thank you, Andrew!
This is just one of many such gaps. Another is the way Medicaid plays into this issue. Medicaid will pay for medical care and has an estate recovery claim against the property, but the claim is not recorded or the amount disclosed. Medicaid recipients and heirs can easily be misled into thinking a property is free and clear or subject only to a Reverse Mortgage lien when in fact Medicaid has a claim that exceeds the value of the property. If the government was committed to transparency, Medicaid would issue monthly statements showing a running total of the amount spent so the family would have an idea of the claim size. Medicaid would also have a quick and easy way to determine if such a claim might exist. I learned of the issue last year when one of my clients died. The property transferred to son, who refinanced the Reverse Mortgage and kept the home. We could not get title insurance for four months because of a potential Medicaid claim. Medicaid refused to disclose if a claim existed or not. If there had been a Medicaid claim, the son may have chosen a different course of action. Why is Medicaid intentionally and unnecessarily concealing important information concerning the existence and size of a potential claim? This also causes unnecessary losses for FHA because if the family knows there is a Medicaid claim and a Reverse Mortgage, there may be good business reason to abandon the property to foreclosure instead of spending legal fees on probate. There are good ways to reduce or prevent these losses, but changing principal limits or underwriting guidelines will not do anything to stop losses caused by Medicaid.
Hi Shannon. Solid article and great insight. Spoken by someone who knows why we do Reverse Mortgages. I took the liberty of reposting on my site, Remarkable Reverse Mortgage.
Mark Schmidt
Thank you, Mark and thank you for reposting.