Estate Planning Bits

Reverse mortgage – costs are down, so it might be time to reconsider

In the past year or so, the cost for reverse mortgages has decreased. Previously, this type of mortgage was fairly expensive to obtain, so it was questionable as to whether it was economically beneficial to obtain one.

The reverse mortgage is a relatively straight-forward transaction in which a senior may wish to withdraw funds from the equity in his or her home without having to repay the money back to the bank.

A homeowner who is a least 62 years of age can use a reverse mortgage to access the equity in his home. As opposed to a traditional mortgage where payments have to be repaid, the reverse mortgage allows the homeowner to receive the funds in their choice of a lump sum payment, monthly payments, or to withdraw the funds as needed. Interest accrues on the unpaid balance only as funds are withdrawn. As the debt increases, the home equity does decrease, but the payments still do not have to be paid back, usually until the homeowner is deceased or moves from the home. If the home is sold, the lender is repaid the principal and all accumulated interest payments, and if there is any equity left, then the homeowner or their estate would receive those funds at the time of sale. 

One of the largest problems in the past was the expense of obtaining a home equity loan, as fees could have totaled up to 5% of the value of the home. Lately, the costs have been reduced, and this has allowed more homeowners to consider tapping the equity in their home. Reverse mortgages can be obtained from both large and small banks, however many of the smaller banks are processing reverse mortgages and then selling them off to the larger providers.

If you are considering using a reverse mortgage, you should consult with an elder law attorney to be sure that the equity in your home is protected from long-term care expenses. Often, a reverse mortgage may be a wonderful opportunity to access equity so that you may remain home as opposed to moving to an alternative living facility. However, it is important to consider the additional consequences for long-term care planning and possibly income taxes when putting together a plan for the future. Nevertheless, this is a very affordable option for developing a plan if you wish to remain in your home.

Hyman G. Darling, Esq.

Why your estate plan should change with your life

It is important to periodically review your will and estate plan, especially in light of the following changes in your life….

Children

Most parents are concerned about how their children will be cared for in the event that both parents die. It is imperative to name a guardian for your minor children within your will. Also, parents should consider a trust if they wish to stagger financial inheritance distributions for their children, instead of having the kids receive a lump sum at the age of 18.

Marriage

It is important to note that your spouse does not automatically become the executor of your estate. Furthermore, you want to assure that your assets are distributed according to your intentions. In the event that you die without a will, also known as dying “intestate,” the state in which you reside will dictate the distribution of your assets.

Divorce

In most states, a divorce revokes the provisions of a will that apply to the former spouse, which will require the need to create a new will. In addition, you should review your durable power of attorney, health care proxy, beneficiary designations, and other estate planning documents to ensure that they concur with your new distribution and planning intentions.

Remarriage

If you wish to separate your assets and nullify your inheritance rights to each other’s estates, a prenuptial agreement should be contemplated. Also, if you and your new spouse have children from prior marriages, a distribution plan should be discussed to assure that all children are provided for as intended. 

Middle Age

As you age, your assets tend to grow. It may be likely that when you initially executed your estate plan, you did not have the assets that you do now. In the event that you have assets including but not limited to a house, retirement plans, brokerage accounts, life insurance, etc… that exceed the Massachusetts threshold of $1 Million, an estate tax may be owed upon your death. As such, you may wish to consider trusts that facilitate sheltering these assets from MA estate tax.

Death of Spouse

Upon the death of a spouse, you may need to draft a new will or designate others to become your health care agent and durable power of attorney. Further, there may be advantages to disclaiming some of your inheritance for the benefit of contingent beneficiaries, such as your children. This is true especially if your estate has potential estate tax implications.

Life changes, and so should your estate plan. An experienced estate planning attorney should be able to assist you to assure that your plan is current as you navigate your ever-changing life.

Todd C. Ratner, Esq.

Photo credit: Microsoft  

 

Reassessing your valuables and insurance in light of 2011’s many natural disasters

In light of 2011’s many local weather disasters, this may be a good time to review the coverage you have on your tangible property and your dwelling. Many homeowners’ policies do not provide for significant coverage in the event of a loss except for $500 for tangible property that is not separately scheduled and appraised. 

Naturally, if these items are appraised and insured, there would be an additional premium. With the prices of commodities rising, gold, silver, diamonds, platinum, and many precious possessions have increased significantly in value, and these items will not be replaced, except up to $500 in total in the event of a loss. 

Some standard homeowners’ policies include coverage up to $1,000 or $2,000, but even this is often far less than what is necessary. It is important to obtain a valid and updated appraisal on your tangible property such as art, antiques, furs, wine, collections, and jewelry. Following appraisal, your policies should be updated to include coverage for these individual items, so if there is a significant casualty loss, such as a storm fire, flood, or burglary, these items will be insured. 

You can add protection for individual items with a rider called a floater. The premium depends upon the risk and location, so it may be cheaper to insure jewelry stored in a bank safe deposit box than the same items kept at home. You may also consider buying blanket coverage to have higher limits on certain items, such as furs and art. Before automatically having all your valuables insured, however, it may be more cost effective to consider the individual value of your items and then determine insurance cost by selecting coverage for your most important pieces. 

You should review your tangible property insurance needs periodically, along with the rest of your financial planning, such as estate planning documents, life insurance, disability insurance, etc.  

 

Hyman G. Darling, Esq

 Photo credit: Microsoft