Reverse Mortgages Becoming Popular Financial Planning Tool, But Can Impact Your Ability to Qualify for Medicaid
Reverse mortgages have quickly become a popular financial planning tool and there are many benefits associated with this type of mortgage. However, there are some potential drawbacks you should be aware of when it comes to qualifying for Medicaid benefits. This isn’t meant to dissuade you from considering a reverse mortgage, just advice to help you in how to best arrange the method in which you obtain the equity from a reverse mortgage.
Here’s how a reverse mortgage works – you take out a reverse mortgage loan and have the option of receiving the home equity through: (1) a line of credit, (2) a lump sum, (3) monthly payments, or (4) a combination of these options, according to allrmc.com. You don’t have to pay the lender back, as long as you live in the house, according to agingcare.com. If the mortgage is for a married couple, then no the couple doesn’t need to pay the bank or mortgage company back until neither spouse is living in the home. This can be a potential financial planning option if you and your loved one do not have other sources of steady income to meet your needs in your later years.
A possible drawback of a reverse mortgage you need to be aware of is the potential ramifications on qualifying for need-based government assistance like Medicaid. This program considers income and assets when determining whether someone will qualify for benefits. Reverse mortgage proceeds usually don’t qualify as taxable income, but the unspent balance from a lump-sum reverse loan could put your assets over the allowable limit and disqualify you for Medicaid funds. Keep in mind, this situation arises if you opt for the lump sum reverse loan. The line of credit, monthly payments, or hybrid approaches may have differing impacts on Medicaid qualification.
Determining whether or not you should consider a reverse mortgage, and the type of equity method, is an important decision that can have implications for your estate plan. This is why you should strongly consider contacting an Ashburn estate planning attorney, or an estate planner in your area, and schedule a meeting to talk about this important issue.
About the Editors: InSight Law is an estate planning firm in Ashburn, Virginia (VA). The firm’s areas of practice include estate planning, business planning, trust and probate administration, assisting veterans and their family members with obtaining benefits, and medicaid planning. If you have questions, don’t hesitate to contact our office at 703-654-6019. We’re here to help.