Elder Law Firm of Steve Bailey

How Can I Plan for Nursing Home Care Costs?

“To pay for nursing home costs beyond 100 or 190 days, many people turn to Medicaid, veterans benefits, relocation to a less expensive part of the country, long-term care insurance or reverse mortgages.”

You cannot count on Medicare paying for much, if you need nursing home care. Medicare can pay for skilled nursing care for a short period of time, but not for ongoing residential services. Medicare will also not pay for a nursing home admission for a chronic or long-term condition for which there is no cure. It will pay for you to recuperate (convalesce) briefly from an illness or injury. As you strategize for your financial future, you need to answer the question, How can I plan for nursing home costs?

Medicare will pick up the tab for 100% of the first 20 days and 80% for the next 80 days. If you have Medicare Supplement insurance, it will pay the other 20% for days 21 through 100. Neither Medicare nor Medicaid Supplement insurance will pay anything after 100 days, unless you are in a psychiatric hospital that is also a nursing home and you are there for a psychiatric condition. In that situation, Medicare will help pay up to 190 days.

Options to Pay for Nursing Home Care

To pay for nursing home costs beyond 100 or 190 days, many people turn to Medicaid, veterans’ benefits, relocation to a less expensive part of the country, long-term care insurance or reverse mortgages. You should consider different factors for each of these options.

Medicaid pays for more nursing home costs than any other agency or organization – around half of the total nursing home costs in America. Not everyone can meet the stringent financial requirements to qualify for Medicaid. You must be low income and have few assets to be eligible. Medicaid excludes many common assets, like your home, from counting toward the asset limit. There are ways to shift your income and protect your assets through estate planning products like trusts, but you should talk with an elder law attorney to find out your best options.

If you are a veteran or the spouse of a veteran, you may qualify to live in a state Veterans Administration (VA) nursing home. Every state and each nursing home has different rules for eligibility, so you will have to do your homework to find one that meets your needs and that is available for you. If you receive Aid and Attendance benefits from the VA, you cannot also live in a state VA nursing home.

Although it can be difficult to uproot yourself if your medical condition requires nursing home care, where you live can make a tremendous difference in the cost of nursing home care. The average cost of nursing home varies from a low of $147 a day in Oklahoma to $364 a day in New York to a stunning $800 a day in Alaska. The national average is $235 a day. With this variation in the expense, relocation can make your dollars go further.

Long-term care insurance is expensive, and as you get older, the premiums continue to rise. You are trusting that the company will still be in business decades down the road when you need them. At least one major long-term care insurance company liquidated in 2017 under court order. If you never need long-term care, you will get no benefit from all those premiums you paid.

Reverse mortgages and other financial products can offer more flexibility than long-term care insurance at a lower cost, but these products can also have downsides. Planning for nursing home care costs requires the consideration of multiple factors. The laws are different in every state, so you should talk with an elder law attorney in your area to decide on the best plan for you.

References:

Paying for Senior Care. “How to Pay for Nursing Home Care.” (accessed December 5, 2017) https://www.payingforseniorcare.com/longtermcare/paying-for-nursing-homes.html

How to Determine Whether a Reverse Mortgage is Right for Your Aging Parents

“In addition to helping with monthly cash flow issues, some people using reverse mortgages to help one spouse qualify for Medicaid assistance with nursing home bills while letting the co-borrower spouse remain in the home and get a monthly check.”

If your parents are considering a reverse mortgage, they must know the advantages and disadvantages of these financial devices. There are risks involved, but if they know what they are doing, a reverse mortgage can be beneficial. Here are tips on how to determine whether a reverse mortgage is right for your aging parents.

Reverse Mortgages 101

A reverse mortgage (also called a home equity conversion mortgage) is a loan that provides your parents with a check every month. When they die or move out of the house, the bank will call the loan for repayment. The heirs can then either sell the house to repay the loan or pay off the loan to keep the house.

A variation on this basic theme is if your parents select a line of credit option instead of monthly checks. They would only tap into the reverse mortgage line of credit when they needed or wanted to, which would likely result in a smaller amount that the estate would have to repay to the bank.

The traditional reverse mortgage is typically used when a senior needs money to pay monthly living expenses and bills. The line of credit option is often used by aging adults who want to pay off a large debt, such as a medical expense, or pay for an occasional expense (as opposed to monthly bills), such as travel.

What You Do Not Know Can Hurt You

Unfortunately, some people have a bad experience with reverse mortgages because they or their loved ones are blind-sided with unexpected consequences. Here are things you must know about reverse mortgages:

• Reverse mortgages affect everyone who lives in the house. If you move out of the house or die, everyone else has to move out of the house, too, unless they can afford to pay off the loan. You can avoid this result to a certain extent, if your spouse is a co-borrower on the loan. At least she can stay in the house, if you are no longer there.
• Using reverse mortgage proceeds for investment can be a bad gamble. If you withdraw a large amount from your reverse mortgage to invest in the stock market, hoping to make enough money to pay your loan interest and have money left over, you can lose money. This will decrease your equity in your home. To compound the problem, whatever money you made in the stock market will be taxable, even though it was less than the loan interest.
• Reverse mortgages come with high fees. If you are planning to use a reverse mortgage just to make ends meet for a few years, you may lose $5,000 to $10,000 of your home’s equity in up-front fees. You should explore other options, such as a standard home loan or home equity line of credit, or sell the home and move to more affordable housing.

Advantages of a Reverse Mortgage

If you are drowning in debt and struggling to make the monthly payments, a reverse mortgage might be a good solution for you. If the loan pays off your debts and you can then maintain your home and pay the property taxes and homeowner’s insurance, you may enjoy life more and sleep better at night. Know of the downsides discussed above, and the fact that every dollar you take out of your home’s equity is a dollar you cannot give to your children or others through inheritance one day.

Besides helping with monthly cash flow issues, some people are using reverse mortgages to help one spouse qualify for Medicaid assistance with nursing home bills, while letting the co-borrower spouse remain in the home and get a monthly check. This arrangement can be tricky, but if done correctly, both spouses can benefit.

Every state has different laws, and this posting discusses the general law. Talk with a local elder law attorney to comply with your state’s laws.

References:

Reverse Mortgage Alert. “Is a Reverse Mortgage a Good or Bad Idea? Positives & Downsides Compared.” (accessed November 16, 2017) https://reversemortgagealert.org/pros-and-cons/

CNBC. “Rethinking reverse mortgages: Bad move or bright idea?” (accessed November 16, 2017) http://www.cnbc.com/2015/04/01/rethinking-reverse-mortgages-bad-move-or-bright-idea.html

1. S. News & World Report. “6 Drawbacks of Reverse Mortgages.” (accessed November 16, 2017) https://money.usnews.com/money/personal-finance/banking-credit/articles/2017-06-16/6-drawbacks-of-reverse-mortgages

Reverse Mortgages - Good or Evil?

“Experts disagree on whether reverse mortgages are a good idea.”

You have seen the ads on television. The celebrity spokesperson claims that you can solve all of your problems with a reverse mortgage. It sounds too good to be true. And you know that when something sounds too good to be true, it usually is. Therefore, are reverse mortgages good or evil?

How does a reverse mortgage work?

A reverse mortgage is a loan. You get cash in a lump sum or in monthly payments, and you get to keep living in your home. The loan is due when you pass away.  If the loan is not paid by your estate, the bank will do a foreclosure to sell the house and pay back the loan. If the sales proceeds are less than the outstanding loan balance, no worries – as long as your loan required you to buy FHA insurance. The insurance will cover the difference. If the sales proceeds are more than the outstanding loan balance, your heirs get the difference. 

Experts disagree on whether reverse mortgages are a good idea. While many financial gurus despise reverse mortgages, others suggest that while reverse mortgages may work for some people, they are a bad idea for most people.

Reasons to consider a reverse mortgage

In some circumstances, a reverse mortgage may be a smart financial move. Just make sure that you get quotes from at least three lenders and complete reverse mortgage counseling. You might want to think about a reverse mortgage if:

• You do not intend to gift your home to anyone when you pass away.
• You have the money to keep paying your real estate taxes and homeowners insurance, and to keep your house well-maintained.
• The reverse mortgage will give you enough money to solve your current financial issues for the long-term.
• You plan to continue living in your home for a long time. Reverse mortgages have costly up-front fees. Therefore, these loans are not a good idea, if you are planning to move in the next few years.
• Your spouse is at least 62 years old - so that she can be a borrower on the reverse mortgage. Being on the loan, protects her from losing the home when you move into assisted living or pass on. This status also keeps the monthly income from the loan coming to your spouse after you no longer live in the home.

Reasons not to get a reverse mortgage

On the other hand, for some people a reverse mortgage cause problems. Here are some reasons not to get a reverse mortgage:

• Your children will not inherit your home.
• You cannot move, either to a different house or to assisted living. Since you must live in the home to be eligible for a reverse mortgage, moving out triggers the loan repayment requirement.
• You must be healthy enough to continue living in your home indefinitely. If you move to an assisted living facility, you will have to repay the loan.
• You have to keep paying real estate taxes and homeowners insurance, or the lender will call in the loan. If you do not keep your home in good repair, the lender can sell your home to pay off the loan.
• Anyone who lives with you will have to move out, if you no longer live in the home. Whether you move to assisted living or you pass away, your spouse, disabled child, relative or friend will not be allowed to stay, unless he is a borrower on the reverse mortgage.
• The interest rates are variable on many reverse mortgages, which adds uncertainty to your financial well-being.

The laws on reverse mortgages vary by state, so make sure you talk with an elder law attorney in your area.

References:

CNBC. “Rethinking reverse mortgages: Bad move or bright idea?” (accessed July 11, 2017) http://www.cnbc.com/2015/04/01/rethinking-reverse-mortgages-bad-move-or-bright-idea.html

1. S. News & World Report. “6 Drawbacks of Reverse Mortgages.” (accessed July 11, 2017) https://money.usnews.com/money/personal-finance/banking-credit/articles/2017-06-16/6-drawbacks-of-reverse-mortgages

Investopedia. “5 Signs a Reverse Mortgage is a Good Idea.” (accessed July 11, 2017) http://www.investopedia.com/articles/personal-finance/090115/5-signs-reverse-mortgage-good-idea.asp

Investopedia. “5 Signs a Reverse Mortgage is a Bad Idea.” (accessed July 11, 2017) http://www.investopedia.com/articles/personal-finance/090115/5-signs-reverse-mortgage-bad-idea.asp

Tackling the Myths Surrounding Reverse Mortgages

“There are many misconceptions surrounding reverse mortgages.”

TC Palm’s recent article, “Myths vs. realities surrounding reverse mortgages,” highlights some of the misunderstandings and misinformation that commonly come up when talking about reverse mortgages.

Myth # 1: My lender will own our home. No, you will keep the title and ownership of the home during the life of the loan. You can also sell your home at any time. The loan won’t become due as long as you keep satisfying the loan obligations, including living in the home, maintaining the home according to FHA requirements and paying property taxes and homeowner's insurance.

Myth # 2: The home has to be free and clear of existing mortgages. This is also not true. Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.

Myth # 3: You must pay taxes on the loan proceeds when they are received. Reverse mortgage loan proceeds are tax-free.  They are really not considered income. However, there may be an impact on government benefits eligibility.

Myth # 4: The borrower is limited on how to use the loan proceeds. When any existing mortgage or lien has been paid off, the loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for anything, such as supplementing household retirement income, deferring receiving Social Security benefits, paying off other debt, paying medical expenses, remodeling the home or helping family members.

Myth # 5: Reverse mortgages are for poor people. This is not true. The notion that reverse mortgages help only the poor borrower is changing. More affluent senior borrowers with multi-million dollar homes and healthy retirement assets now use reverse mortgage loans as part of their financial and estate planning.

Myth # 6: My children will have to pay off the loan. Reverse mortgages are a non-recourse loan. Therefore, if your children want to keep the home and the loan balance is more than its value, they’d have to pay 95% of the appraised value to keep the home.

Reference: TC Palm (February 21, 2017) “Myths vs. realities surrounding reverse mortgages”

Reverse Mortgages Are Back in Style

“A reverse mortgage gave us the option to build what we wanted.”

One couple who wanted to live in a community for people 55 and older in an area they had always admired used a reverse mortgage to finance building their home in that development.

The New York Times article, “The quiet comeback of reverse mortgages,” reports that reverse mortgages, which allow homeowners age 62 and older to tap into their accumulated home equity without facing monthly payments in return, have received a bad rap over the years because of abuses by lenders.

The volume of reverse mortgages decreased to about 30,000 this year from about 115,000 at their highest point in 2009. However, with reforms, they’re making a slight comeback and are viewed as a way of helping some retirees fill in the gaps in their future income. A reverse mortgage can provide cash or “longevity insurance” when other sources of retirement income dwindle. They also can be a source for out-of-pocket health care costs or other sudden financial needs. Similar to a conventional mortgage, a reverse mortgage obligation is met when the house is sold by the owners, the last owner has died or the home is sold by heirs. Any equity left over is kept by the last homeowner.

Also known as “Home Equity Conversion Mortgages,” these loans are insured by the government. The Federal Housing Administration makes up any debt owed from the final loan balance and net proceeds from the sale. You don’t have to worry about being “underwater” on the loan in case the home’s value is less than the mortgaged amount.

Reverse mortgages can give retirees with only modest savings but little or no housing debt the ability to stay in their homes and can provide a financial safety net for those worried about outliving their retirement funds.

A reverse mortgage can eliminate the burden of conventional housing debt, monthly payments of interest and principal, and can assure heirs that they wouldn’t be required to make up any losses if the home sold for less than the value of its mortgage.

Stricter regulation from the FHA and the Consumer Financial Protection Bureau—like mandatory counseling prior to lending—and lower costs have helped increased their popularity among seniors. Some folks don’t have enough savings to get through retirement, so they may use all of their wealth—including home equity—as a retirement income source. Others use reverse mortgages to create a cash buffer in the event a dip in the stock market depletes their retirement portfolio. Rather than selling stocks and funds when the market is down, they can use their home equity through a reverse mortgage line of credit to provide an income stream. One other rationale for seniors looking at reverse mortgages is to finance the costs of long-term care.

Although it can be a source of ready cash, a reverse mortgage isn’t for everyone. If you want to leave your home to your heirs by letting them sell your home at your death, a reverse mortgage will leave no equity in your home.

If you’re thinking about a reverse mortgage, do your homework and don’t be in a rush. Consult an elder law or estate planning lawyer for more information regarding how this might work for your situation.

Reference: The New York Times (July 2, 2016) “The quiet comeback of reverse mortgages”