What lies beneath the inheritance objection

When meeting with potential reverse mortgage borrowers and their children many originators have found themselves wading into an undercurrent of unspoken promises, expectations, and anxiety about Mom and Dad’s estate plan. That’s why it’s often said it’s not until an estate has been settled that one can truly know their family members.

Most of us can attest to this having seen ugly family disputes and ruined relationships in the wake of a parent’s death.

Prior to their parent’s passing adult children have a myriad of concerns. Learning that their parents are considering a reverse mortgage often prompts questions such as, ”How will this affect me?” or “What is Mom and Dad’s true financial situation?”. It’s not uncommon in such situations for adult children to oppose the loan.

Before we continue a disclosure to our viewers. I am not a financial advisor. I am a reverse mortgage commentator, trainer, and passionate supporter of the proper use of reverse mortgages. So always seek the advice of a trusted professional when considering a reverse mortgage.

A Blessing or a Burden?

These unknown factors can leave all but the most seasoned reverse mortgage professional tongue-tied or resigned that a reverse mortgage is no longer a viable option. Today we will examine how inheritance objections are opportunities for increased family transparency, realistic planning, and flexibility and freedom for parents and their adult children.

First, let’s get to the meat of the matter. There’s a disconnect between older homeowners’ well-intentioned plans to leave the home to their children and reality. A Fannie Mae survey of older Americans last year confirms a majority of homeowners- 62% plan to leave the home to their children or heirs. However, a recent Charles Schwab survey found that 70% of adult children will sell the home they inherit from their parents. The question arises if inheriting a home a blessing or a burden?

This isn’t surprising considering a home’s location, maintenance requirements, property taxes, or present condition may not be the ideal choice for an estate’s beneficiaries. If they hold onto the home for a significant period any gains in value after the death of their parents are subject to long-term capital gains taxes. If they sell quickly there’s typically little gain to be taxed. Not to be overlooked are the conflicts between siblings that may arise when there’s no agreement to keep the home or if those who wish to buy the house cannot afford to pay off their siblings.

The Issue at Hand

Yet, beyond the concerns of adult children, potential family infighting, or self-interest are the needs of the parents. What prompted them to look into a reverse mortgage in the first place? Perhaps it’s because they’ve continued to provide financial support long after their children have left the house. A Savings.com survey found 21% of parents were supporting children in their 20s and as old as 59 averaging about $900+ each month. Another survey found that one in three parents said their support placed them under increased financial strain.

The motivations to pursue a reverse mortgage are too numerous to discuss today and are well-known by reverse mortgage professionals. The question is are the children willing or able to support their parents financially? An AAG survey in late 2022 found that over a third of adult children worry their parents will be a financial burden and over half state they’ve never discussed their parents’ finances.

And to be fair, it’s not just a financial need motivating older homeowners to consider a reverse mortgage. For some, it’s a part of a strategic retirement plan. For others, it’s a means to boost their standard of living in retirement.

The Living Inheritance

Then there’s a living inheritance which allows parents to see the benefit from a financial gift while alive. This may allow them to financially backstop their children when necessary or help with the funds needed to qualify to buy a home, pay a grandchild’s tuition, or fund a family vacation.

Although the desire to leave an inheritance is not illusory, the anticpated outcomes often are. Inheritance is not always all it’s chocked up to be. Knowing this we see that inheritance concerns are often an illusion-not a show-stopper. If anything they can help iron out some of the wrinkles common with most inheritances.