Making Sense of Reverse Mortgages Information you need to make a good decision!

April 29, 2010

Reverse mortgages and trusts

Filed under: Uncategorized — Scott Larson @ 12:34 pm

 There have been a lot of questions lately regarding reverse mortgages and trusts, specifically can we make a reverse mortgage when a “standard” revocable trust is involved.

 The answer is yes,  at least most of the time.  The reverse mortgage can accommodate vesting the property in the trust, and allowing the trust powers to be exercised once the reverse mortgage is in place.

 Where we run into problems is when one or more of the principals of the trust is unable to sign or understand a reverse mortgage.  Even though powers to convey or borrow may be granted in a trust to a successor trustee, HUD holds us to a higher standard. 

 We will typically run into this when a child is caring for an aging parent suffering from Alzheimer’s, dementia, or a stroke.  The child has assumed responsibility for the bills, and/or medical treatment and has been operating as a successor trustee, sometimes for years.  Then the money runs out, and the child looks to the home to help provide for mom or dad.  Unless a power of attorney has been previously prepared, the process cannot even be started. 

 There are only 3  acceptable ways that a reverse mortgage can be started, according to HUD – in person, using a power of attorney (dated before the disabling event), or using a conservatorship.  This keeps the loan officer and/or underwriter from being responsible for determining the ability of the senior to understand the transaction. 

 This may seem harsh or unreasonable, but when considered in light of protecting the senior makes some sense. 

 Part of the issue is that many people view an estate plan as a “set it and forget it” type of document.  The trust has been in place for years, and in most cases only used occasionally.  Meanwhile, the standard of care has increased, so  we are dealing with the changes that may have occurred over many years, sometimes decades.

 A conservatorship is an extended, expensive project, so the advice here is to make sure the estate plan updated regularly.  An annual review might  seem expensive, but only until you compare it to the costs of not doing it.

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