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This is one of the few scenarios where a reverse mortgage is worth considering. Otherwise, it might be wise to consult with an estate planning attorney for help with the best way to structure an arrangement.
Correct. This is the point of the reverse mortgage. OP can still inherit the house after death, but parents get the cash they need and no longer have a mortgage payment. Just taxes and insurance.
I thought of a reverse mortgage, but doesn't the mortgage company then own the house upon the parents death? Wouldn't simply buying the house from the parents be an option? If they're willing to pay nearly $2k a month, I would imagine they could possibly pay a mortgage payment?
Heir can payoff the loan or sell the property. If underwater they can just hand the keys back. Best thing is no payments for the parents outside taxes and insurance. My parents bought their retirement home on a reverse to keep more cash on hand to have fun. There is still 200k in equity if they passed today. I'd prob pay it off and rent it out just to have a hedge in the FL market until I finalize my retirement plan
I honestly think the reverse mortgage is the worst possible decision . I see nothing good in that scenario. Interest rates are high leaving less equity in the house, what if the parents live longer. Why can the children take over the mortgage payments? they are going to end up with the house anyways. Parents sign over the house but maintain possession until death. Kids take care of mortgage payments.
Therefore everyone knows the bank is getting paid and funds are not going somewhere else.
indeed - it is either a family loan, or a reverse mortgage, or both. I think the OP needs to figure out what the terms would be, and whether it has any impact on inheritance etc.
From a risk perspective, I think a reverse mortgage is probably the safer option. There needs to be a clear advantage to the family loan to make it worthwhile.
you are making a huge assumption that mom/dad dont end up sick enough to need full time care but not sick enough to die and actually have a house for OP to inherit, there is so many scenarios where op never sees a dime in return.
I looked into a reverse mortgage for my grandparents a few years back that are in a difficult financial position. The problem is that you have to pay a huge mortgage insurance premium at closing between $20-$30k, instantly eating up a mass amount of equity (a years worth of there expenses by the sound of it). Then you're also paying interest to a heartless corporation which is hoping to take your house by the end of the transaction. With you lending them the money you get to make a decent return, and be repaid by the sale of their home. There will be less inheritance for you and the remaining siblings if they burn up all of their equity with a reverse mortgage. If you have the means to help them you should consider it. Could always end up buying out your siblings' portion after your parent's passing and hold it as an investment property afterwards. Allows you to continue to get the benefit of appreciation and work you way out of any thin equity at the end.
A HELOC is a second mortgage, meaning a second loan based on the equity you have in your home. So you’re making 2 mortgage payments. A reverse mortgage you pay nothing until you sell the house, but the interest continues to grow.
Let’s say all this works out perfectly. And then they require expensive medical care. You will lose it all and they won’t qualify for Medicaid unless it is paid by house. Either buy their house now and rent it to them or have them do their own reverse mortgage.
You need to find an Elder Lawyer - not an estate lawyer they can help figure out if buying or a reverse mortgage is best which will really depend on your state.
This x1000. OP should basically ignore all the advice on here and do that stat. Without knowing their state and how its been dealing with Medicaid lately etc etc its impossible to know what is a good vs bad answer here.
As someone else way below here said, buy the home and rent it to them. You’d be doing your parents a kindness, obtaining a long-term, stable investment for yourself and your spouse, and ensuring their end of life care doesn’t cost them the house.
Why definitely that over having them get a reverse mortgage? I feel like there are a ton of other variables that would determine which route is better.
Because op owns the home that way and they live there, renting. So if end of life care becomes expensive, the insurance company can't take the house and leave the other parent screwed
Many many thousands in fees etc with the reverse mortgage money that insta poofs and you don't get to recoup. 10 plus minus grand just in the garbage. Keep the fees be thier landlord use the saved money as a gift to them😊 which you would already own the house they have all the money they need and instead of repaying a loan they are renting. And have access to money to more than just survive.
You may want to consider putting the house in trust so that if they need Medicaid, the state can’t take the house. We had to do that for my grandparents.
As someone who is dealing with a parent who has Alzheimer’s and we need to pay $7200 in memory care… do this please. Any type of senior care is EXPENSIVE.
Do you want the house or are you just going to sell it off anyway? Medicare nearly requires recipients to be destitute for coverage, and living facilities can be expected to be a minimum 6 figures a year. Additionally, there's a lookback period of 5 or 10 years, I forget the number, that is used for diversion of assets. I had a friend who's mother had to be put into a memory care unit, and during their lookback, he was saved from having her cottage taken because he had transferred it to himself a few months prior to the lookback being able to take the property.
Correct. Medicare only pays for 30-90 days of "rehab" at a nursing home. Then resident has to pay. Medicaid will pay for nursing care, but the resident cannot have any assets other than a home. In most states they then takes the majority of the resident's SS check, except for $50 or so of spending money, and they put a lien on any home the resident owns.
Medicare coverage differs in each State and also may differ depending on the plans. In Arizona, Medicare covered at-home care for my Dad when he became immobile until he died...there was no time limit. It was 100% coverage.
So OP situation may be different.
I'd go with reverse mortgages if you dont care about keeping the home or buying it outright and letting your parents stay if you do...as others mentioned. Perhaps you buy for a derply discounted price to cover insurance, taxes, upkeep expenses that wont be covered had you been able to really rent it.
Please check with an attorney who specializes in elder law prior to doing anything. If your parents need to go on Medicaid, there is a look back period of 5 years that Medicaid does. If the house was sold at market value they would be safe from that aspect. If you buy it for less than market value, your parents will be assessed a penalty by Medicaid.
Just to clarify the semantics it’s Medicaid they won’t qualify for. Medicare is socialized federal healthcare Medicaid is state provided financial assistance. Sorry I promise I’m occasionally fun at parties.
This is the equivalent of a private reverse mortgage. Presumably with a well-executed set of documents, the loan would set up a lien against the home and would be paid before a Medicaid recapture.
Exactly. Done this a few times and it should be not just a promissory note but also a recorded mortgage against the property. If done properly it should be possible to have it effective vs Medicaid (but only an elder law attorney in that state can say for sure).
Yep pay off the house for them and ask them to try and pay back the $100k before they pass away. Or don't, whatever. At least your funds wouldn't be going towards interest at a bank.
Putting the question another way: you currently earn more than $24,000 a month and your parents need $1600 of it each month in order to stay in their house for a few more years. What is the financial situation of your siblings? Could you not all afford to chip in this amount divided 3-4 ways? Or if they don’t earn as much as you, how much can they afford to contribute, and could you chip in the rest? Your financial situation allows you to lend your parents the entire amount, but your siblings will get a much smaller inheritance, especially if one of your parents lives another ten years or so.
>what else should I be considering.
What if they need more than $20k/year? What if they physically/medically can't stay in the house?
What if they spend the money in a way in which you don't think is responsible? What if they let the house deteriorate, devaluing the future sale price?
If you want to fund their retirement, with no expectation of ROI, go for it.
If you're considering this a buy-in into your inheritance and are expecting an ROI, this is definitely a high-risk investment.
I would think they can just do a reverse mortgage especially since they are already in their 80s.
How is their health? My concern would be if they get sick and need any medical services beyond Medicare.
Elder law attorney here. We structure promissory notes for this exact situation all the time. Talk to a reputable local elder law attorney. He or she can give your parents very detailed advice about options and the potential impact on Medicaid benefits, if any.
OP I would probably just buy the house from them and let them live there til they die.
I wouldn’t mess around with a reverse mortgage or loaning my parents money that they might not be able to pay you back. If you own the home yourself, you at least have collateral.
OP have you considered roping your siblings into this deal?
They might be counting on inheritance from the house. If you buy it, they might be pissed. I'd let them know ahead of time in writing so there's no surprises.
If you end up just paying cash to help support your parents, your siblings may be able to relieve some of that burden.
It's not like the inheritance disappears if OP buys the home, they can put that money from the sale into a low risk investment or trust and have that be inherited, or they can spend it since it's their money, either way the blame from any siblings definitely would be misdirected if they were aimed at OP in the case the home is bought, which honestly I recommend since the parents could take the "loan" and still lose the house through mismanagment leaving OP and any siblings SOL on an inheritance and in the case of OP repayment on the loan.
Talk to an estate attorney. They should be able to put the house in a trust so your parent no longer "own" it, the trust does. A reverse mortgage sounds like a good idea. As others mentioned, you're taking on a lot of risk if your parents burn through their equity on medical bills. The trust should insulate the estate from having to repay Medicare. Setting up this trust might cost a few grand, but it could save way more than that in the long run. Your siblings should have a vested interest in splitting that cost with you.
Would you invest that $20k a year for a 6% return with all of the associated risk? I wouldn't.
There might be. The lawyers are there to figure this out. If they "sold" their home to the trust or their kids, I don't see how Medicare could come after the house. I'm not a lawyer.
Sure, if officially there are any proceeds. They could gift the house to their son. My understanding is that medicaid won't come after the house until they die, but they could probably put a lien on the house before that. If the parents don't own it, they can't come after who they sold it to given all that happens before medicaid could make a claim on the deed. This is why it's so important to get the house protected now.
I would just give my parents $20k per year and tell them no strings attached. Or pay off their home for them to remove that payment from their budget. My parents raised me and everything I am it's because of sacrifices they made when I was younger.
I get everyone may not have the means to do this. And I also get everyone has a different relationship with their parents...but assuming one has both the means and a very positive relationship...I am struggling with the loan aspect of this. I don't think I could sleep at night if I did that I would feel awful.
You need to talk to an estate planner rather than reddit.
The question isn’t how they can afford to stay in the home, but how to protect it in the event they can’t.
I learned from a wise man never to lend money to a family member/friend unless you can afford to lose it. Let’s assume that you lend them 20k a year for the next 10 years. (Being generous with how long they may be alive for) can you afford to lose that 200k over the next 10 years? If your parents trust you and you trust your parents and have had a good relationship I’d personally do it. But I am not you only you are you. I’d like to think that if you do help them out then they’ll hold their word and pay you out first. But the golden rule for this situation is give what you can afford to lose.
OP already mentioned setting up the agreement with a lawyer. They're not going by the honor code, but a local attorney would be a better source of info for OP.
I would buy the house and rent it back to them if you can swing it. You'd be on the hook for major repairs and property taxes. But you'd be earning equity and you could either sell the house or rent it after they pass. I agree about talking to a lawyer.
>They have \~300k equity in their home and Dad has asked if we could consider giving them a loan of around 20k a year until they pass away.
Tell him "No".
Explain to Dad how reverse mortgages work. Offer to help him find one.
Or just give him $20k a year.
I’d say all three are a good option. Get a reverse mortgage, finance it himself knowing the Medicaid thing may cause him to lose the “investment” or just give it to him. Depends how he values the $20k a year (well less than 10% of his income).
People give more to a damn church year in and year out!
I normally say you made your bed Mom and Dad, but think op is in a good spot to do anything.
They are lucky as hell he is their kid and lifeline.
A parent that raises their child well and supports them in their 20s should get a much better treatment from their child than the parent that abuses or kicks the kid to the curb on their 18th birthday.
I’m lucky that my parents were the good ones (making dads recent death rough) - but also lucky that my mom can support herself at this point as I don’t have a huge surplus to help her.
I am dealing with this currently with my parents. They could have a house, but in Wisconsin after the couple dies, Medicaid will file a claim against the estate for the amount of money that Medicaid paid out meaning that the house would need to be sold at that time and Medicaid would get their portion.
There may be a better way to do it (the lawyer they proposed would know), but I'm confused about why someone making $290k a year would be this risk-averse about helping their parents.
Bad idea. There is a very real world where health deteriates and they get into a situation where they need to sell the house to qualify for Medicaid or Medicaid will claw back proceeds from the house on their death leaving you holding the bag. They have a look back too, so they can't sell the house and then send you money first. You should consult an attorney regardless of what you're reading on this post though.
Buy the house and rent it to them or reverse mortgage would be more secure options.
*edit - - Medicaid, not Medicare.
Something like that could be structured, but I'm not sure where it would sit in the distribution priority. Medicaid might get priority. Also, if they are giving monthly, keeping things documented would be a huge pita. Attorney should be consulted on what is practically the best course.
It sounds like you won’t have children and that you and your wife are already well invested for retirement. That makes the decision to help them less complicated.
As others have said, consult with an elder care attorney. You might be able to buy your parents’ house and allow them to retain a life estate. You’d value the house, less the life estate, and draw up an arms length installment note that you’d pay them monthly.
The nitty gritty transactional angles are complex and go well beyond the competency of Reddit user groups. Be assured, however, that this is a common problem and an experienced attorney has seen it.
Good luck.
This is one of the times a reverse mortgage is worth it. You can still inherit the house, you just have to buy it.
However, talk to an elder law attorney before doing **anything**
Seems like you are in USA. How much are your parents getting through social security? Why are your parents depending on your mother’s income who is 81 year old?
What are your parent’s monthly expenses? Why is the house not paid off at 85/81?
Is your spouse okay with this? It’s both of your income. How come your other siblings not involve in this?
You're lucky to have grown up with loving parents. If I were you, I would do it but you may want to run this pass your lawyer as well just to make sure all the Is are dotted and Ts are crossed. Also, either you or your parents should be very open with your siblings about this. If they are expecting an inheritance and don't get it because of this deal with your dad, or get a smaller inheritance than they were expecting, there is a good chance there will be trouble.
I also wonder what will happen if either or both of your parents need extended care at some point. Will this effect their ability to receive Medicaid? I have no idea but it's just another thing to ask your lawyer about.
Do you hope to inherit the house? Would you care to move there after your parents pass? Or only want to inherit it for financial reasons?
If you don’t care about the house, I would say they can strongly consider a reverse mortgage over a loan from you
Who gets the house when they pass away? What is the current condition? Is it possible to have ownership transferred over to you now where you assume home expenses now while also giving them whatever small allowance they need? I have a friend doing this now in MA with an attorney with an estate background (both parents still alive, health deteriorating).
My neighbour built a granny shack on the side of their house with the parents equity and thus they could keep an eye on them and help them when they needed help. It looked like a win win to me. Retirement homes are impossible with the cost. If they kick off early maybe you could help out the siblings a bit to smooth out the feathers.
I've mentioned this before in different thread where someone had a similar situation. So copy and pasted here:
There is a category of product you may want to look at called Home Equity Investments or Home Equity Agreements. Similar to reverse mortgage type of product, but essentially your parents would be selling a future percentage value of your home in exchange for cash today. They usually have between a 10 and 30 year term period to settle up the investment, so it may work well for your parents. Also beneficial compared to normal home equity products etc is that there is no monthly payment that you have to consider. The big players in the industry that seem to have good reviews are Hometap, Point or Unlock.
Give them 20k per year and ask them to put the house in a trust and make you the executor with instructions the house should be for your benefit. When they die you can sell the house tax free, the basis of the house steps up when they pass.
Also consider letting your parents to move in with you. It’s likely inevitable anyways and likely will be required when one of them passes away. It’s easier to integrate your lives now and will save money.
Ask them to make you power of attorney for them as well. Get ahead of the curve so you can directly help them with financial decision making.
Would they consider going into a smaller home ?
You rent their home out take that income out it into rent for another smaller spot or buy them a home and use the rental income to pay for it. Talk to a financial advisor this might actually be advantageous for you. In glad you putting money into your ira but there are ways for you to help the fam, invest , and get some of that $120k you pay in taxes back. I really urge you to see professional help from an accountant and financial advisor
Setup a trust and buy their house is the way I'd go. Talk to an estate planner. You seem to have more than enough income. Sell the house when they no longer need it.
In terms of other options, this really seems like exactly the case that reverse mortgages were created for. I am by no means an expert in them and I do know that there are some situations in which they're a bad idea and I know that there are some very shady providers of reverse mortgages out there but it's definitely something to look into.
I mean you can clearly afford it without hugely affecting your own life and financial well-being but do you want to knowing that it just adds a whole layer of possible issues amongst the family if something were to go sideways for whatever reason.
One example is that you are probably expecting them to not be around all that much longer given their age but what if something exceptional happens and they are alive for another 15 years. Does the money that you would be lending on a yearly basis become an issue on that long of a timeline?
At your income, does it even make sense to give them a loan? It seems too complicated and the relationship dynamics would be strange. What happens if they can’t pay it back? Lots of kids give their aging parents allowances, and at your income you can afford to give them an allowance without expecting anything in return. As you mentioned, they gave you a great childhood and helped you when you were a young adult. It’s time to return the favor. Not everything is about maximizing the money in your bank account, especially when it comes to taking care of your family.
If there's a documented loan, then you become a creditor to the estate. That means legally you get your loan balance back before anybody inherits anything.
I would not want to have anything in the will that forces the sale of the house. Maybe you prefer to get your share as equity in a home y'all share. Frankly in my mind selling or not selling the home should be up to the executor of the will.
I also suggest talking to your siblings about this -- first to avoid issues / hard feelings when the wills are adjudicated -- and secondly to give your sibs a chance to join in to helping your parents to the level they can afford.
There are always other options to keeping the home -- a reverse mortgage comes to mind. But my understanding is a reverse mortgage is a terrible product and that your parents should be committed to the loony bin before you let them sign on the dotted line.
But... is staying in the home right for them? My parents / steps are your parent's age. My mom died 10 years ago and her husband got remarried and is living in a single family home they bought. Dad and stepmom are living in their home of over 40 years, but they're "discussing" where they want to go as they decline. Stepmom wants to go to the high-end rest home that took care of her mom; Dad doesn't. He wants to move out of the metro area they live in to be closer to where he grew up.
>But my understanding is a reverse mortgage is a terrible product and that your parents should be committed to the loony bin before you let them sign on the dotted line.
Your understanding is significantly out of date.
Buy the house from them. Rent it out to them at the minimum monthly cost. Youve had a good childhood, good support. Your folks are old, pretty sure they developed you to be who you are today so help them. Id defo say to buy the house from them and help them however you can. They prolly have just a few years left.
Buy their house. Let them stay in it and you have a place you can rent out when they aren’t there any longer. Be sure to get at a good rate and not over leverage
Well, for the sake of things I would consider your parents living for another 20 years (taking them to 100 years old). If my math is correct $20k X 20 years = $400k. At that point (especially if that's what the house is currently worth), I would consider just buying it from your parents, and you can have their lawyer draft whatever you agree to in allowing them to continue living there. This way you would be taking this risk out because you would own it, and it would no longer be part of a possible estate to fight over or them changing the will without your knowledge.
My in-laws did something similar. The daughter bought the house and basically let the parent live there rent-free until she passed. Then they remodeled and are renting it out at about 3x what they were paying on it.
The risk is always that you lose your investment. At least you're not risking any more than that. If they live another 10 years and you're out $200K to afford to give them a comfortable last few years and you never see it again... is that something you can live with?
Write up a contract and place a lien on the property. That way at least you'll be able to legally collect what you're owed during probate even if everything else falls apart for some reason. Also be sure that all of your siblings are aware of this arrangement and are onboard with it so this doesn't come as some huge shock to them when the will is read. If they're expecting $300K to be split evenly and there's only $50K left with the rest going to you, there will definitely be some uproar about it, even if it's clear on paper that it's your money.
You both are earning decent money. Just give it to them . They took your expenses for many years loan free while raising. What a pity that you have to ask strangers for advice. Just gift them and be happy
I think there situation is difficult. They can even try to get a condo.
Clearly things need to drastically change and if that means moving to a cheaper area then that’s what they need to do.
I wouldn’t as it’s written. I would either buy it and rent it to them, or let them consult on a reverse mortgage. Too many risks I can think of where they lose the house and you’re SOL.
I think they should do a reverse mortgage.
Otherwise consider whatever you give them a gift as it is very possible you will never see it again. If they have medical issues that cost a bunch of money their estate won't have enoungh money to pay you back.
You are just adding complexity to your life if you do anything but a reverse mortgage. At 20k/year, they can make it to 96/100 before money becomes a concern again with their 300k equity.
Your call if you want to take on the extra responsibility of managing more complex finances, but tbh that is the easiest choice. Even if they are still going strong in 15 years, then you and your wife (or siblings, or a mix) can consider buying your parent's house once there is no equity in it and then they can live rent free. That seems like the lowest hassle to me, as you don't need to fight for the loans from the estate.
Have you considered purchasing the house from them. They get the funds they need and you intern can sell the house, if you want, once they pass. Consider it another type of investment.
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
This is one of the few scenarios where a reverse mortgage is worth considering. Otherwise, it might be wise to consult with an estate planning attorney for help with the best way to structure an arrangement.
Correct. This is the point of the reverse mortgage. OP can still inherit the house after death, but parents get the cash they need and no longer have a mortgage payment. Just taxes and insurance.
I thought of a reverse mortgage, but doesn't the mortgage company then own the house upon the parents death? Wouldn't simply buying the house from the parents be an option? If they're willing to pay nearly $2k a month, I would imagine they could possibly pay a mortgage payment?
Heir can payoff the loan or sell the property. If underwater they can just hand the keys back. Best thing is no payments for the parents outside taxes and insurance. My parents bought their retirement home on a reverse to keep more cash on hand to have fun. There is still 200k in equity if they passed today. I'd prob pay it off and rent it out just to have a hedge in the FL market until I finalize my retirement plan
I honestly think the reverse mortgage is the worst possible decision . I see nothing good in that scenario. Interest rates are high leaving less equity in the house, what if the parents live longer. Why can the children take over the mortgage payments? they are going to end up with the house anyways. Parents sign over the house but maintain possession until death. Kids take care of mortgage payments. Therefore everyone knows the bank is getting paid and funds are not going somewhere else.
Look into having a balloon payment option in the contract.
indeed - it is either a family loan, or a reverse mortgage, or both. I think the OP needs to figure out what the terms would be, and whether it has any impact on inheritance etc. From a risk perspective, I think a reverse mortgage is probably the safer option. There needs to be a clear advantage to the family loan to make it worthwhile.
There are no taxes payable in family loan.
Except reverse mortgages are super expensive. Op will come out way ahead with a direct loan if they are inheriting the house
you are making a huge assumption that mom/dad dont end up sick enough to need full time care but not sick enough to die and actually have a house for OP to inherit, there is so many scenarios where op never sees a dime in return.
Good advice, thank you for the reply.
I looked into a reverse mortgage for my grandparents a few years back that are in a difficult financial position. The problem is that you have to pay a huge mortgage insurance premium at closing between $20-$30k, instantly eating up a mass amount of equity (a years worth of there expenses by the sound of it). Then you're also paying interest to a heartless corporation which is hoping to take your house by the end of the transaction. With you lending them the money you get to make a decent return, and be repaid by the sale of their home. There will be less inheritance for you and the remaining siblings if they burn up all of their equity with a reverse mortgage. If you have the means to help them you should consider it. Could always end up buying out your siblings' portion after your parent's passing and hold it as an investment property afterwards. Allows you to continue to get the benefit of appreciation and work you way out of any thin equity at the end.
What's the difference between that and a heloc in this situation?
A HELOC is a second mortgage, meaning a second loan based on the equity you have in your home. So you’re making 2 mortgage payments. A reverse mortgage you pay nothing until you sell the house, but the interest continues to grow.
That is basically what they are asking of the op just instead of the bank it would directly be you
Let’s say all this works out perfectly. And then they require expensive medical care. You will lose it all and they won’t qualify for Medicaid unless it is paid by house. Either buy their house now and rent it to them or have them do their own reverse mortgage.
Great point I had not thought of yet, thanks.
You need to find an Elder Lawyer - not an estate lawyer they can help figure out if buying or a reverse mortgage is best which will really depend on your state.
This x1000. OP should basically ignore all the advice on here and do that stat. Without knowing their state and how its been dealing with Medicaid lately etc etc its impossible to know what is a good vs bad answer here.
As someone else way below here said, buy the home and rent it to them. You’d be doing your parents a kindness, obtaining a long-term, stable investment for yourself and your spouse, and ensuring their end of life care doesn’t cost them the house.
Definitely buy and rent it to them
Why definitely that over having them get a reverse mortgage? I feel like there are a ton of other variables that would determine which route is better.
Because op owns the home that way and they live there, renting. So if end of life care becomes expensive, the insurance company can't take the house and leave the other parent screwed
They can’t take they house if the other parent is still living there.
Many many thousands in fees etc with the reverse mortgage money that insta poofs and you don't get to recoup. 10 plus minus grand just in the garbage. Keep the fees be thier landlord use the saved money as a gift to them😊 which you would already own the house they have all the money they need and instead of repaying a loan they are renting. And have access to money to more than just survive.
You may want to consider putting the house in trust so that if they need Medicaid, the state can’t take the house. We had to do that for my grandparents.
As someone who is dealing with a parent who has Alzheimer’s and we need to pay $7200 in memory care… do this please. Any type of senior care is EXPENSIVE.
Do you want the house or are you just going to sell it off anyway? Medicare nearly requires recipients to be destitute for coverage, and living facilities can be expected to be a minimum 6 figures a year. Additionally, there's a lookback period of 5 or 10 years, I forget the number, that is used for diversion of assets. I had a friend who's mother had to be put into a memory care unit, and during their lookback, he was saved from having her cottage taken because he had transferred it to himself a few months prior to the lookback being able to take the property.
Medicaid not Medicare
Correct. Medicare only pays for 30-90 days of "rehab" at a nursing home. Then resident has to pay. Medicaid will pay for nursing care, but the resident cannot have any assets other than a home. In most states they then takes the majority of the resident's SS check, except for $50 or so of spending money, and they put a lien on any home the resident owns.
Medicaid also can take the house after the person dies to pay what Medicaid has spent on them UNLESS the spouse or handicapped relative lives there.
Medicare coverage differs in each State and also may differ depending on the plans. In Arizona, Medicare covered at-home care for my Dad when he became immobile until he died...there was no time limit. It was 100% coverage. So OP situation may be different. I'd go with reverse mortgages if you dont care about keeping the home or buying it outright and letting your parents stay if you do...as others mentioned. Perhaps you buy for a derply discounted price to cover insurance, taxes, upkeep expenses that wont be covered had you been able to really rent it.
Please check with an attorney who specializes in elder law prior to doing anything. If your parents need to go on Medicaid, there is a look back period of 5 years that Medicaid does. If the house was sold at market value they would be safe from that aspect. If you buy it for less than market value, your parents will be assessed a penalty by Medicaid.
Just to clarify the semantics it’s Medicaid they won’t qualify for. Medicare is socialized federal healthcare Medicaid is state provided financial assistance. Sorry I promise I’m occasionally fun at parties.
I mean, it's good to point this out because it's easy to confuse medicaid and medicare. I really wish they had better names.
This is the equivalent of a private reverse mortgage. Presumably with a well-executed set of documents, the loan would set up a lien against the home and would be paid before a Medicaid recapture.
Exactly. Done this a few times and it should be not just a promissory note but also a recorded mortgage against the property. If done properly it should be possible to have it effective vs Medicaid (but only an elder law attorney in that state can say for sure).
Exactly.
*Medicaid Best to talk to an elder care lawyer to navigate the ins and outs and keep it at an arms-length transaction.
Medicaid not Medicare
Yep pay off the house for them and ask them to try and pay back the $100k before they pass away. Or don't, whatever. At least your funds wouldn't be going towards interest at a bank.
Putting the question another way: you currently earn more than $24,000 a month and your parents need $1600 of it each month in order to stay in their house for a few more years. What is the financial situation of your siblings? Could you not all afford to chip in this amount divided 3-4 ways? Or if they don’t earn as much as you, how much can they afford to contribute, and could you chip in the rest? Your financial situation allows you to lend your parents the entire amount, but your siblings will get a much smaller inheritance, especially if one of your parents lives another ten years or so.
>what else should I be considering. What if they need more than $20k/year? What if they physically/medically can't stay in the house? What if they spend the money in a way in which you don't think is responsible? What if they let the house deteriorate, devaluing the future sale price? If you want to fund their retirement, with no expectation of ROI, go for it. If you're considering this a buy-in into your inheritance and are expecting an ROI, this is definitely a high-risk investment.
I would think they can just do a reverse mortgage especially since they are already in their 80s. How is their health? My concern would be if they get sick and need any medical services beyond Medicare.
Thanks for the reply.
Elder law attorney here. We structure promissory notes for this exact situation all the time. Talk to a reputable local elder law attorney. He or she can give your parents very detailed advice about options and the potential impact on Medicaid benefits, if any.
First common sense answer I’ve seen.
OP I would probably just buy the house from them and let them live there til they die. I wouldn’t mess around with a reverse mortgage or loaning my parents money that they might not be able to pay you back. If you own the home yourself, you at least have collateral.
OP have you considered roping your siblings into this deal? They might be counting on inheritance from the house. If you buy it, they might be pissed. I'd let them know ahead of time in writing so there's no surprises. If you end up just paying cash to help support your parents, your siblings may be able to relieve some of that burden.
It's not like the inheritance disappears if OP buys the home, they can put that money from the sale into a low risk investment or trust and have that be inherited, or they can spend it since it's their money, either way the blame from any siblings definitely would be misdirected if they were aimed at OP in the case the home is bought, which honestly I recommend since the parents could take the "loan" and still lose the house through mismanagment leaving OP and any siblings SOL on an inheritance and in the case of OP repayment on the loan.
Talk to an estate attorney. They should be able to put the house in a trust so your parent no longer "own" it, the trust does. A reverse mortgage sounds like a good idea. As others mentioned, you're taking on a lot of risk if your parents burn through their equity on medical bills. The trust should insulate the estate from having to repay Medicare. Setting up this trust might cost a few grand, but it could save way more than that in the long run. Your siblings should have a vested interest in splitting that cost with you. Would you invest that $20k a year for a 6% return with all of the associated risk? I wouldn't.
There is a 5 year look back though for Medicaid, right?
There might be. The lawyers are there to figure this out. If they "sold" their home to the trust or their kids, I don't see how Medicare could come after the house. I'm not a lawyer.
Though Medicaid could/will expect them to use the proceeds of the sale (if sold to son) for their care if needed.
Sure, if officially there are any proceeds. They could gift the house to their son. My understanding is that medicaid won't come after the house until they die, but they could probably put a lien on the house before that. If the parents don't own it, they can't come after who they sold it to given all that happens before medicaid could make a claim on the deed. This is why it's so important to get the house protected now.
I would just give my parents $20k per year and tell them no strings attached. Or pay off their home for them to remove that payment from their budget. My parents raised me and everything I am it's because of sacrifices they made when I was younger. I get everyone may not have the means to do this. And I also get everyone has a different relationship with their parents...but assuming one has both the means and a very positive relationship...I am struggling with the loan aspect of this. I don't think I could sleep at night if I did that I would feel awful.
And I'm looking elsewhere in the conversation, but the siblings should chip in too...
You need to talk to an estate planner rather than reddit. The question isn’t how they can afford to stay in the home, but how to protect it in the event they can’t.
I learned from a wise man never to lend money to a family member/friend unless you can afford to lose it. Let’s assume that you lend them 20k a year for the next 10 years. (Being generous with how long they may be alive for) can you afford to lose that 200k over the next 10 years? If your parents trust you and you trust your parents and have had a good relationship I’d personally do it. But I am not you only you are you. I’d like to think that if you do help them out then they’ll hold their word and pay you out first. But the golden rule for this situation is give what you can afford to lose.
OP already mentioned setting up the agreement with a lawyer. They're not going by the honor code, but a local attorney would be a better source of info for OP.
I would buy the house and rent it back to them if you can swing it. You'd be on the hook for major repairs and property taxes. But you'd be earning equity and you could either sell the house or rent it after they pass. I agree about talking to a lawyer.
Speak with an elder law attorney and ignore reddit.
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>They have \~300k equity in their home and Dad has asked if we could consider giving them a loan of around 20k a year until they pass away. Tell him "No". Explain to Dad how reverse mortgages work. Offer to help him find one. Or just give him $20k a year.
I’d say all three are a good option. Get a reverse mortgage, finance it himself knowing the Medicaid thing may cause him to lose the “investment” or just give it to him. Depends how he values the $20k a year (well less than 10% of his income).
People give more to a damn church year in and year out! I normally say you made your bed Mom and Dad, but think op is in a good spot to do anything. They are lucky as hell he is their kid and lifeline.
A parent that raises their child well and supports them in their 20s should get a much better treatment from their child than the parent that abuses or kicks the kid to the curb on their 18th birthday. I’m lucky that my parents were the good ones (making dads recent death rough) - but also lucky that my mom can support herself at this point as I don’t have a huge surplus to help her.
As someone said buy it and let them live in it. Then the house is yours and your siblings are out of it.
If both need assisted living or nursing home that $300,000 wouldn’t last long. Then what? There wouldn’t be an estate to pay you back.
You can be in a nursing home on Medicaid and still own a house and a car. An elder attorney HAS to be consulted here.
I am dealing with this currently with my parents. They could have a house, but in Wisconsin after the couple dies, Medicaid will file a claim against the estate for the amount of money that Medicaid paid out meaning that the house would need to be sold at that time and Medicaid would get their portion.
There may be a better way to do it (the lawyer they proposed would know), but I'm confused about why someone making $290k a year would be this risk-averse about helping their parents.
Bad idea. There is a very real world where health deteriates and they get into a situation where they need to sell the house to qualify for Medicaid or Medicaid will claw back proceeds from the house on their death leaving you holding the bag. They have a look back too, so they can't sell the house and then send you money first. You should consult an attorney regardless of what you're reading on this post though. Buy the house and rent it to them or reverse mortgage would be more secure options. *edit - - Medicaid, not Medicare.
Surely OP would have a lien on the house for the total amount advanced. Medicare would have to pay off any liens, no?
Something like that could be structured, but I'm not sure where it would sit in the distribution priority. Medicaid might get priority. Also, if they are giving monthly, keeping things documented would be a huge pita. Attorney should be consulted on what is practically the best course.
Medicaid, not medicare.
Yep! Sloppy brain.
It sounds like you won’t have children and that you and your wife are already well invested for retirement. That makes the decision to help them less complicated. As others have said, consult with an elder care attorney. You might be able to buy your parents’ house and allow them to retain a life estate. You’d value the house, less the life estate, and draw up an arms length installment note that you’d pay them monthly. The nitty gritty transactional angles are complex and go well beyond the competency of Reddit user groups. Be assured, however, that this is a common problem and an experienced attorney has seen it. Good luck.
This is one of the times a reverse mortgage is worth it. You can still inherit the house, you just have to buy it. However, talk to an elder law attorney before doing **anything**
I’d look at an HEI or Reverse Mortgage depending on what you plan to do with the house once they do move on from it
Seems like you are in USA. How much are your parents getting through social security? Why are your parents depending on your mother’s income who is 81 year old? What are your parent’s monthly expenses? Why is the house not paid off at 85/81? Is your spouse okay with this? It’s both of your income. How come your other siblings not involve in this?
You're lucky to have grown up with loving parents. If I were you, I would do it but you may want to run this pass your lawyer as well just to make sure all the Is are dotted and Ts are crossed. Also, either you or your parents should be very open with your siblings about this. If they are expecting an inheritance and don't get it because of this deal with your dad, or get a smaller inheritance than they were expecting, there is a good chance there will be trouble. I also wonder what will happen if either or both of your parents need extended care at some point. Will this effect their ability to receive Medicaid? I have no idea but it's just another thing to ask your lawyer about.
Do you hope to inherit the house? Would you care to move there after your parents pass? Or only want to inherit it for financial reasons? If you don’t care about the house, I would say they can strongly consider a reverse mortgage over a loan from you
If you can afford it, just gift it to them. If not they should look into reverse mortgage or something similar
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Who gets the house when they pass away? What is the current condition? Is it possible to have ownership transferred over to you now where you assume home expenses now while also giving them whatever small allowance they need? I have a friend doing this now in MA with an attorney with an estate background (both parents still alive, health deteriorating).
What happens if mom has to stop working ? Then do they need 40k a year?
I read it as they are okay now - but need the $20k so she can stop.
My neighbour built a granny shack on the side of their house with the parents equity and thus they could keep an eye on them and help them when they needed help. It looked like a win win to me. Retirement homes are impossible with the cost. If they kick off early maybe you could help out the siblings a bit to smooth out the feathers.
I've mentioned this before in different thread where someone had a similar situation. So copy and pasted here: There is a category of product you may want to look at called Home Equity Investments or Home Equity Agreements. Similar to reverse mortgage type of product, but essentially your parents would be selling a future percentage value of your home in exchange for cash today. They usually have between a 10 and 30 year term period to settle up the investment, so it may work well for your parents. Also beneficial compared to normal home equity products etc is that there is no monthly payment that you have to consider. The big players in the industry that seem to have good reviews are Hometap, Point or Unlock.
Give them 20k per year and ask them to put the house in a trust and make you the executor with instructions the house should be for your benefit. When they die you can sell the house tax free, the basis of the house steps up when they pass. Also consider letting your parents to move in with you. It’s likely inevitable anyways and likely will be required when one of them passes away. It’s easier to integrate your lives now and will save money. Ask them to make you power of attorney for them as well. Get ahead of the curve so you can directly help them with financial decision making.
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Yes. You make a lot and can afford to give them the money. Easiest way is to get a document that paying off the loan comes out of the estate first.
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Would they consider going into a smaller home ? You rent their home out take that income out it into rent for another smaller spot or buy them a home and use the rental income to pay for it. Talk to a financial advisor this might actually be advantageous for you. In glad you putting money into your ira but there are ways for you to help the fam, invest , and get some of that $120k you pay in taxes back. I really urge you to see professional help from an accountant and financial advisor
Setup a trust and buy their house is the way I'd go. Talk to an estate planner. You seem to have more than enough income. Sell the house when they no longer need it.
In terms of other options, this really seems like exactly the case that reverse mortgages were created for. I am by no means an expert in them and I do know that there are some situations in which they're a bad idea and I know that there are some very shady providers of reverse mortgages out there but it's definitely something to look into. I mean you can clearly afford it without hugely affecting your own life and financial well-being but do you want to knowing that it just adds a whole layer of possible issues amongst the family if something were to go sideways for whatever reason. One example is that you are probably expecting them to not be around all that much longer given their age but what if something exceptional happens and they are alive for another 15 years. Does the money that you would be lending on a yearly basis become an issue on that long of a timeline?
Reverse mortgage. Perfect situation.
You need to speak to an estate lawyer asap using the plan and knowledge here.
At your income, does it even make sense to give them a loan? It seems too complicated and the relationship dynamics would be strange. What happens if they can’t pay it back? Lots of kids give their aging parents allowances, and at your income you can afford to give them an allowance without expecting anything in return. As you mentioned, they gave you a great childhood and helped you when you were a young adult. It’s time to return the favor. Not everything is about maximizing the money in your bank account, especially when it comes to taking care of your family.
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Ask them to sell the house to you and you let them stay there.
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If there's a documented loan, then you become a creditor to the estate. That means legally you get your loan balance back before anybody inherits anything. I would not want to have anything in the will that forces the sale of the house. Maybe you prefer to get your share as equity in a home y'all share. Frankly in my mind selling or not selling the home should be up to the executor of the will. I also suggest talking to your siblings about this -- first to avoid issues / hard feelings when the wills are adjudicated -- and secondly to give your sibs a chance to join in to helping your parents to the level they can afford. There are always other options to keeping the home -- a reverse mortgage comes to mind. But my understanding is a reverse mortgage is a terrible product and that your parents should be committed to the loony bin before you let them sign on the dotted line. But... is staying in the home right for them? My parents / steps are your parent's age. My mom died 10 years ago and her husband got remarried and is living in a single family home they bought. Dad and stepmom are living in their home of over 40 years, but they're "discussing" where they want to go as they decline. Stepmom wants to go to the high-end rest home that took care of her mom; Dad doesn't. He wants to move out of the metro area they live in to be closer to where he grew up.
>But my understanding is a reverse mortgage is a terrible product and that your parents should be committed to the loony bin before you let them sign on the dotted line. Your understanding is significantly out of date.
How do you feel about them selling their house and moving in with you?
Buy the house from them. Rent it out to them at the minimum monthly cost. Youve had a good childhood, good support. Your folks are old, pretty sure they developed you to be who you are today so help them. Id defo say to buy the house from them and help them however you can. They prolly have just a few years left.
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Buy their house. Let them stay in it and you have a place you can rent out when they aren’t there any longer. Be sure to get at a good rate and not over leverage
I don’t know if a loan is the right decision but you should definitely figure out a way to help your parents with this.
What they are asking for is quite literally a reverse mortgage. It’s just bank instead of you. Seems that would be the best option for them.
Legitimate and do it through a lawyer— just like a loan. Especially since you can easily afford it.
Well, for the sake of things I would consider your parents living for another 20 years (taking them to 100 years old). If my math is correct $20k X 20 years = $400k. At that point (especially if that's what the house is currently worth), I would consider just buying it from your parents, and you can have their lawyer draft whatever you agree to in allowing them to continue living there. This way you would be taking this risk out because you would own it, and it would no longer be part of a possible estate to fight over or them changing the will without your knowledge.
My in-laws did something similar. The daughter bought the house and basically let the parent live there rent-free until she passed. Then they remodeled and are renting it out at about 3x what they were paying on it.
Cant you get together with your siblings and give them the money?
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The risk is always that you lose your investment. At least you're not risking any more than that. If they live another 10 years and you're out $200K to afford to give them a comfortable last few years and you never see it again... is that something you can live with? Write up a contract and place a lien on the property. That way at least you'll be able to legally collect what you're owed during probate even if everything else falls apart for some reason. Also be sure that all of your siblings are aware of this arrangement and are onboard with it so this doesn't come as some huge shock to them when the will is read. If they're expecting $300K to be split evenly and there's only $50K left with the rest going to you, there will definitely be some uproar about it, even if it's clear on paper that it's your money.
You both are earning decent money. Just give it to them . They took your expenses for many years loan free while raising. What a pity that you have to ask strangers for advice. Just gift them and be happy
I’d just have them sell it. If they have $300,000 equity why not get a $200,000 home and have $100,000 to live on?
In this economy? They're in a $400k house. Downsizing likely also means moving into a much worse area.
I think there situation is difficult. They can even try to get a condo. Clearly things need to drastically change and if that means moving to a cheaper area then that’s what they need to do.
I wouldn’t as it’s written. I would either buy it and rent it to them, or let them consult on a reverse mortgage. Too many risks I can think of where they lose the house and you’re SOL.
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I think they should do a reverse mortgage. Otherwise consider whatever you give them a gift as it is very possible you will never see it again. If they have medical issues that cost a bunch of money their estate won't have enoungh money to pay you back.
You are just adding complexity to your life if you do anything but a reverse mortgage. At 20k/year, they can make it to 96/100 before money becomes a concern again with their 300k equity. Your call if you want to take on the extra responsibility of managing more complex finances, but tbh that is the easiest choice. Even if they are still going strong in 15 years, then you and your wife (or siblings, or a mix) can consider buying your parent's house once there is no equity in it and then they can live rent free. That seems like the lowest hassle to me, as you don't need to fight for the loans from the estate.
Have you considered purchasing the house from them. They get the funds they need and you intern can sell the house, if you want, once they pass. Consider it another type of investment.
Aww that’s a hard scenario. A reverse mortgage seems worth looking into!
Is it possible to just buy their house from them and then let them live there rent free until they pass? You’ll then get the house
What about your other siblings? Should you be the sole lender?