Annapolis, Maryland Wills, Trusts & Estate Planning

Did My Sibling Take Advantage of Distance and Our Aging Mother Before She Died? - Annapolis Estate Planning

This is the kind of family situation that no one should have to deal with. However, siblings don’t always treat each other with kindness, especially when a parent has died and the other sibling has not been directly involved with caregiving.

Many times, estate planning attorneys can read between the lines to discern the dynamics of a family when one sibling asks questions about another’s actions. One such example is an adult child who asks how they can be sure if a brother divided their mother’s estate evenly.

The mother had told the children about life insurance policies and a safety deposit box. However, the brother reported that life insurance policies were cashed out, the safety deposit box was emptied and closed, a car was sold, and a reverse mortgage placed on the house, before she died. If Mom did take these actions before she died and didn’t tell anyone, or if she only told one child, it may not look right to the other sibling.

Can this information be verified without things getting ugly?

It will take some investigating. The good news is that there's always a paper trail.

nj.com’s recent article asks, “My mom died. How can I know I'm getting the right inheritance?” As the article explains, if the policies were cashed out by the parent, they no longer exist.

If you know the name of the insurance company and policy number, you can try to call the life insurance company’s home office to confirm this. However, they may not give out much information if you weren’t the named beneficiary.

If Mom had a reverse mortgage, then you know she owned a home. If the home wasn’t owned jointly, then it would be a probate asset.

One way to determine this is to check with the county court where she died to see if a will was probated or any estate administration application was filed. The home would need to be sold by the executor or administrator, so there would be some paperwork. If there was, you can contact the executor/administrator for more information.

With a parent’s safety deposit box, the executor/administrator, once appointed, would have the authority to empty the contents of the box. However, if Mom previously emptied the contents, there’d be nothing for the executor/administrator to retrieve.  You should check with that individual.

It is neither easy nor pleasant to think that a sibling would not be telling the truth about an inheritance. Start by asking some direct questions, in the kindest way possible, to clarify the timeline of these alleged events. Then get a sense of the value of the estate. It may be that you need to speak with an estate planning attorney to get all of the details. Consider the value of the estate and your relationship with your siblings, before going forward.

Reference: nj.com (February 21, 2019) “My mom died. How can I know I'm getting the right inheritance?”

Holden & Campbell, LLC – Annapolis Estate Planning

Empire State Makes Changes to Reverse Mortgage Protections - Annapolis Estate Planning

Included in the budget legislation signed by New York’s governor, is a new requirement that protects senior homeowners by establishing a pre-foreclosure notice process and a fix to notifications and settlement conferences that were created by legislation in 2017.

For seniors who don’t have enough income to cover their expenses, reverse mortgages can be an important way to tap into home equity. A recent article in New York Law Journal, “Residential Foreclosures: Reverse Mortgage Foreclosure Protections,” provides a look at changes to the law that address the growing problem of reverse mortgage foreclosures.

There’s been a spike in reverse mortgage foreclosures, many triggered by “property charge” defaults that could be resolved, if the default is brought to the borrower’s attention. However, reverse mortgages had been excluded from New York’s pre-foreclosure 90-day notices and mandatory settlement conferences.

The new legislation in New York now provides for a special pre-foreclosure notice to be used just for reverse mortgages. The notice gives detailed information about the asserted reverse mortgage default and discloses basic information to reverse mortgage borrowers at risk of foreclosure, along with the other information provided to conventional mortgage borrowers. It also has a list of possible grounds for a lender’s assertion of a default specific to reverse mortgages.

The new reverse mortgage-specific notice lists the following possible claimed defaults that can trigger a reverse mortgage foreclosure:

• failure to occupy the home as a principal residence;
• failure to submit required annual certificate of occupancy;
• death of the named borrower;
• failure to pay property taxes (with a requirement to detail property taxes advanced by the mortgage servicer);
• failure to maintain homeowner’s insurance (with a requirement to detail any insurance procured and paid for by the mortgage servicer);
• failure to pay water or sewer charges (with a requirement to detail any such charges advanced by the mortgage servicer); and
• failure to make required home repairs.

 Similar to the 90-day notices for conventional mortgages, the new law also requires a lender asserting a default based on failure to pay property taxes, water and sewer charges, or to maintain homeowner’s insurance, to specify that the homeowner can cure the alleged default by making a specified payment.

With the new laws in place, notification will help the senior homeowners better protect themselves. The reverse mortgage notice will provide additional information about grants, repayment plans or loans that can be used by senior homeowners to address unpaid property charges and the right to dispute the default by contacting the servicer. Information to help non-borrowing spouses who wish to stay in their homes after the borrower has died and extensions available to seniors over age 80 suffering from long-term illnesses will also be provided.

The new law gives senior homeowners with reverse mortgages in New York, many of the same consumer protections that were previously in place only for traditional mortgage holders.

Reference: New York Law Journal (May 11, 2018) “Residential Foreclosures: Reverse Mortgage Foreclosure Protections”

Holden & Campbell, LLC – Annapolis Estate Planning

Should You Consider a Reverse Mortgage for Retirement Costs? - Annapolis Estate Planning

If circumstances did not permit you to save as much as you wanted, or unexpected costs dented your retirement accounts, a reverse mortgage may be an option to consider.

Reverse mortgages can be very attractive solutions for retirees who find themselves short of funds, since a reverse mortgage will not impact Social Security or Medicare benefits. A reverse mortgage is exactly what it sounds like—a way to take tax-free cash equity out of your home, while you retain ownership.

But, as The Observer News warns in the recent article, “Reverse mortgages can be a key component in retirement planning,” there are pros and cons.

Many people like reverse mortgages because it’s really a loan option that can help homeowners ages 62 and older with equity in their homes enjoy a more comfortable retirement. You’re still able to live in your home and retain the title.

You can also receive cash at the closing and open a line of credit to access the rest, as needed, after a year. You receive monthly payments for a set period or for your lifetime. You can  also choose any combination of these options.

Even if you have an existing mortgage, you may still qualify.

 However, there are some disadvantages.  Since you’re not making payments and receiving income, the loan balance increases as interest and fees accumulate. In addition, because your equity is decreasing, there’ll be less of an inheritance to leave your heirs. While they can still inherit your home, they must first pay any outstanding balance that you owe.

The reverse mortgage must be for your primary residence, and if you permanently move away or no one on the title is living in the home, the reverse mortgage is due immediately.

Bear in mind that closing costs and fees on reverse mortgages are higher than on traditional mortgages. Costs and fees are deducted from the loan proceeds, so you’ll be getting less money overall. On the other hand, you are no longer making mortgage payments. You’ll need to do a careful cost-analysis before signing the papers.

Reference: The Observer News (February 15, 2018) “Reverse mortgages can be a key component in retirement planning”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

The Rules on Reverse Mortgage Have Changed….Again – Annapolis Estate Planning

Good for some people, not so good for others, the changes to reverse mortgages are already in effect. Insurance costs and a reduction in how much can be borrowed, are just two things that are now different.

Here’s a new twist for those considering a reverse mortgage: according to a recent article in Kiplinger, “New Rules for Reverse Mortgages,” upfront mortgage insurance premiums are now set at a flat 2%. That’s for every reverse mortgage, across the board.

This change means that some applicants will pay more, and others will save. If you qualify to take up to 60% of the eligible loan amount in the first year with the remainder available the following year, your upfront cost will increase 1.5% from the previous 0.5%. For those who qualify to take more than 60% in the first year (usually in cases where an outstanding mortgage must be paid off), the upfront cost drops by half a point, from 2.5%.

In addition, the ongoing insurance costs will decrease for all borrowers. The annual premium will drop from 1.25% to 0.5%, which over time, could have a significant impact. The lower ongoing cost may offset much or all the higher upfront cost.

The calculation for maximum loan proceeds is also being adjusted: the adjustments will impact most new borrowers and will cut potential proceeds by 10% to 12%. The new rules drop the percentage of the home value that’s available to borrowers at most ages and at most interest rates. The older you are and the lower the interest rate, the more proceeds you get. However, most will now qualify for less than before the changes.

These changes, which went into effect on October 2, are the latest government effort to secure the federal Home Equity Conversion Mortgage program and alleviate worries about the health of its insurance fund.

Most reverse mortgages are federally backed HECMs, and the government will pay for any gap, if the house sells for less than the loan’s balance.

The new rules present some serious challenges to seniors because of increasing costs and a decrease in the amount that can be borrowed. In addition, seniors who once used reverse mortgages as a kind of mortgage-funded line of credit, known as a “standby strategy,” will probably not be able to afford to do so because of increased upfront costs. Since you don’t pay the annual premium on the untapped line of credit, only on any balance that is accrued, the savings may be lessened. Before you can apply for a reverse mortgage, seniors must also set up and complete a government-required counseling session.

Reference: Kiplinger (September 11, 2017) “New Rules for Reverse Mortgages”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

How an Elder Lawyer Views the Use of Reverse Mortgages – Annapolis Estate Planning

There are certain situations when a reverse mortgage is a suitable financial tool for a senior. An elder lawyer will be able to look at the big picture and provide useful guidance.

Among the many concerns addressed by elder law attorneys are: planning for long-term care, how to manage the assets of the couple or individual and addressing current and future housing needs.

Reverse Mortgage Daily’s recent article, “How Elder Law Attorneys Can Become Key Reverse Mortgage Partners,” explains that the National Association of Elder Law Attorneys (NAELA) has 4,500 members nationwide. Although the organization says it doesn’t have an official position on reverse mortgages, many of its members take advantage of exclusive access to webinars and other online resources about the product.

An elder law attorney’s work requires him to find solutions to a client’s problem, and a reverse mortgage can be part of the answer.

Sometimes a reverse mortgage is the only way that a senior can maintain his or her independence, live at home and cover home care or other services. Part of the elder law attorney’s job, is helping the client see if a reverse mortgage is a good choice.

Just like any other investment, there are right cases and wrong cases for a reverse mortgage. An elder law attorney’s job is to explain the pros and cons of the reverse mortgage in the broader scheme of the planning process. The senior would meet with his or her financial advisor—independent from a mortgage consultant—to discuss whether that specific type of investment vehicle is a good fit for them.

Some elderly people, particularly those who grew up during the Depression, are reluctant to add a new mortgage when they worked so hard to pay off the original mortgage years ago. They may be resistant to the idea of taking on any kind of mortgage at this stage in their lives.

Setting up a meeting with an elder law attorney to consider all of the options that are available, including a reverse mortgage, if it is appropriate, will be helpful in allaying concerns and allowing the family to create an optimal plan.

Reference: Reverse Mortgage Daily (September 18, 2017) “How Elder Law Attorneys Can Become Key Reverse Mortgage Partners”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Planning for Assisted Living’s High Cost – Annapolis Estate Planning

There are steps you can take now to prepare for the cost of assisted living, which is only likely to increase in years to come.

The sad truth is, for most people, savings and Social Security checks simply won’t be enough to cover the cost of assisted living. Many people find themselves needing to combine several different sources, including the generosity of family members, the proceeds of the sale of the family home and, if it was purchased well in advance, a long-term care insurance policy.

Consumer Reports provides some helpful advice to help you afford assisted living in its recent article, “11 Ways to Afford the Assisted Living Care You Need.”

Life insurance. If you or your parent have been paying premiums on a whole or universal life policy for a decade or more and are comfortable leaving less to heirs, an option is to access the policy’s built-up cash value. If you borrow from the policy or withdraw your cost basis (the amount paid in premiums), there’s no tax owed. If you cash in the policy entirely, you’ll pay ordinary income tax on everything but the cost basis. You can withdraw up to your cost basis and borrow the rest.

Veterans Benefits. Veterans and veterans’ survivors eligible for a Veterans Affairs pension, could be eligible for an increase in monthly pension benefits (an enhanced or special monthly pension). There are specific requirements, as well as income and net worth limits, but the asset test is a somewhat subjective decision made by the person processing the application.

HELOC. Homeowners who want or need to keep a home in the family can apply for home equity loans or home equity lines of credit. Be aware of all the setup costs, fees for loan processing, origination, and underwriting, appraisals and document preparation.

Reverse Mortgage. Homeowners 62 and older may use this when only one spouse is entering assisted living. A reverse mortgage allows you to tap into your home equity for cash.

Assisted Living with Flexible Pricing. There are very expensive, all-inclusive pricing models that include all services—three meals a day, 24-hour on-call aides, and transportation in one price. There are also less costly “levels of care” or “tiered pricing” models.

Sidestep the Sizzle. Consider a residence housed in an older building or one with fewer beds. Remember that the shiny new facilities operated by big chains will offer more amenities—but at a cost.

Coverage Gaps. Did you know that you or your parent could be waiting six months for the payments from a long-term-care insurer to start? Therefore, you could be forced to cash in a CD early and your bank might waive the early withdrawal penalty for an urgent need, like assisted living care.  However, if they don’t help you, the penalty is minimal.

Writing Off the Cost of Care. There are tax benefits to high medical expenses. Deductible medical expenses include long-term care insurance premiums, as well as the cost of the medical services provided in the facility. Once the total medical expenses are more than 10% of your AGI, the remainder can be deducted from federal income taxes.

An experienced elder law attorney can help guide you or a loved one, to plan for what will occur, if and when assisted living care is needed.

Reference: Consumer Reports (August 31, 2017) “11 Ways to Afford the Assisted Living Care You Need”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Subtle Change to HUD Reverse Mortgage Rules Could Spell Disaster for Surviving Spouses – Annapolis Estate Planning

Two years ago, a victory for the elderly occurred when advocates succeeded in having more rights and protections put into place for the surviving spouse of a senior with a reverse mortgage.

Protections put into place two years ago, could now be at risk as a direct result of a very subtle language change from the Trump administration’s proposed budget request for the Department of Housing and Urban Development (HUD). The most vulnerable person—a surviving spouse who did not sign the mortgage documents—could be put in a terrible position and face foreclosure on the family home.

The New York Times recently published an article, “2 Senators Question Effects of a Reverse Mortgage Proposal” that two U.S. Senators sent a joint letter to Ben Carson, the Secretary of HUD and Mick Mulvaney, the Director of the Office of Management and the Budget. They sent the letter two months ago to get some clarity on the proposed wording in the budget request. Senator Marco Rubio (R-FL) and Senator Catherine Cortez Masto (D-NV) asked whether the agency was seeking to reverse the previous change in policy.

There’s been no response from HUD about its intent for reverse mortgages, which allow the elderly to use the equity they’ve built up in their homes. That is causing concern, because reverse mortgages are seen as crucial in helping an aging population plan for retirement. Before the change in policy two years ago, a surviving spouse who hadn’t signed the mortgage frequently had to pay what was left on the loan in full or risk being evicted in a foreclosure. The two senators say the old policy is a “loophole” that had “compounded the stress faced by widows and widowers at a time when they were already grieving the loss of their spouse.”

The specific language in question is a proposed change in the National Housing Act that says, in regard to reverse mortgages, that a mortgagor “shall not include the successors and assigns of the original borrower under a mortgage.” The phrase is in a section of the Act providing the types of reverse mortgages eligible for insurance guarantees from the Federal Housing Administration, a division of HUD.

The revised wording can be read as suggesting that a surviving spouse isn’t necessarily entitled to stay in the home.  However, at the same time, Trump’s budget proposal includes a new line that would give the Secretary of HUD broad discretion to determine if a loan is payable after the death of the borrower.

“HUD’s proposed changes to reverse mortgages included in the last budget raised concerns that the administration may be seeking to undo hard-fought existing protections,” Senator Cortez Masto said in an emailed statement on Tuesday. “I hope the administration can make clear that they’re not looking to push seniors out of their homes after the death of their spouse.”

The senators have not yet heard a response from the housing agency about its intention for the language change. One expert noted that even if this is simply a case of bad drafting, it could lead to a bad law that would harm many seniors.

The increase in home prices, along with the enormous number of baby boomers who are reaching retirement age without sufficient savings in place, point to a potential surge in the number of reverse mortgages. Clarifying this issue to protect the elderly from facing an even larger upheaval at an already challenging time in their life is paramount.

Reference: The New York Times (August 8, 2017) “2 Senators Question Effects of a Reverse Mortgage Proposal”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Not as Simple or as Easy as the TV Commercials: Reverse Mortgages - Annapolis Estate Planning

Caution is urged when considering a reverse mortgage as a solution to financial problems during retirement years. Television commercials targeting seniors leave out most of the unpleasant parts of a reverse mortgage.  Rates and fees are extremely high and the homeowner is still responsible to pay property taxes, insurance and upkeep. It’s important to understand the positive and negatives before signing on the dotted line.

The Better Business Bureau receives a lot of complaints about reverse mortgages. As these complaints show, there are problems and issues with reverse mortgages, and they also illustrate that more than a few consumers are confused when they sign up.

A recent article in The (Appleton WI) Post Crescent, titled “Be cautious before taking on reverse mortgage,” says that some consumers don't know that a reverse mortgage is a loan that leverages their home’s equity. It's actually one of the most expensive forms of credit a person can get, with its origination fees, interest charges, and insurance premiums topping those of most other types of loans. Typically, a reverse mortgage origination fee can be up to $6,000 and the initial premium for federal insurance is set at 2% of the home’s value.

Repayment of a reverse mortgage loan isn't required until the borrower dies or moves out of the home, but this is where it can get a bit hairy: if the borrower moves into a nursing home or assisted living facility and leaves behind a non-borrowing spouse, child, or grandchild, they’ll also need to move out.

The article explains that there are seniors who apply for a reverse mortgage because of financial difficulties, which can include property taxes or insurance payments. Reverse mortgage agreements generally state that the property taxes, insurance, upkeep, and maintenance are still the borrower's responsibility. If the borrower fails to do any of these, he or she will be in default. The lender can foreclose.

So, who is best situated for a reverse mortgage?

The Number One benefit of a reverse mortgage is that a senior can remain in the home while at the same time receiving a steady cash flow. The best reverse mortgage candidate is an individual age 62 or older who lives alone and has significant equity in the home (or doesn’t have a mortgage). Also, this person isn't planning on leaving the home to their heirs and is healthy enough to stay in the home for a long time without going into an assisted living facility.

The article says that if you're thinking about a reverse mortgage, forget about those celebrity spokespeople on TV! Talk with an experienced elder law attorney before signing anything.

Lastly, watch out for scammers who want to take advantage of seniors. That includes anybody with a too-good-to-be-true interest rate, real estate deal, or investment idea. Talk with a qualified elder law attorney first.

Reference: The (Appleton WI) Post Crescent (June 20, 2015) “Be cautious before taking on reverse mortgage”

Holden & Campbell - Annapolis, Maryland Estate Planning Attorneys

Reverse Mortgage Schmortgage ... Try These Equity Options Instead - Annapolis Estate Planning

Home equity loans can be problematic if not done correctly and require careful attention to the rights of the surviving spouse, if you are married. And of course, the end of the process means you or your heirs give up your home. There are other ways to tap into your home’s equity that are worth considering. Here, we take a quick look at the top alternatives to reverse mortgages.

Is a reverse mortgage really the answer to your cash-flow needs? It all depends on your situation and the options at hand.

A recent Investopediaarticle, titled "5 Top Alternatives To A Reverse Mortgage," examines some of the top alternatives to reverse mortgages.

1. Refinance Your Existing Mortgage. If you have an existing home loan, you may be able to refinance your mortgage at a lower interest rate and lower your monthly payments to free up some cash.

2. A Home-Equity Loan. This is basically a second mortgage which allows you to borrow money against the equity in your home. The interest is typically tax deductible for loans up to $100,000.

3. A Home Equity Line of Credit. A home equity line of credit ("HELOC") lets you borrow up to an approved credit limit on an as-needed basis, and you pay interest only on the amount of money you actually withdraw. These are adjustable loans, so your monthly payment changes with the interest rates. Interest on a HELOC is usually tax deductible for loans up to $100,000.

4. Sell Your Home and Downsize. The original article also suggests that you think about selling your home to give you access to your home equity. This can be a great option if your current home is too big for your current needs or too difficult or costly to maintain.

5. Sell Your Home to Your Children. One way to do this is a sales-leaseback agreement, where you sell the house to your kids, then rent it back using the cash from the sale. Your children get rental income and will be able to take deductions for depreciation, real estate taxes and maintenance.

The original article says that reverse mortgages may be good for those who are “house-rich and cash-poor.” That is, people with home equity but too little retirement income. Before you decide on which option (if any) is right for you, you should definitely speak with an experienced estate planning attorney.

Reference: Investopedia (October 17, 2014) "5 Top Alternatives To A Reverse Mortgage"

Holden Campbell, LLC - Annapolis, Maryland Estate Planning Attorneys