Best Way to Tap Equity?

[youbet]

DW and her brother have recently concluded that their mom needs to improve her cash flow and asked me for advise!*

MIL is 80 and lives on SS plus RMD's from her small IRA totaling approximately $16K annual income. Savings outside of the IRA are minimal, a few thousand max. She owns a condo in a nice building with underground parking and a compact car.* Outwardly, she seems to be doing fine, but apparently has been quietly cutting back on expenditures in ways that make us uncomfortable (food, meds, etc.).

We already supplement her income as much as we're comfortable with.* I maintain her car.* BIL pays to have the condo cleaned twice a month.* We all slip her a little cash now and then.

Her condo has a market value of about $150K.* It's in a nice building and she has friends there.* She'd like to stay as long as her health allows, which could be a while since she's fine now and her parents lived until their late 90's.

My first thought is to tap the equity in the condo for $5K or so annually.* Any thoughts on the best way to do this?* Alternative solutions?

[thefed]

You could get a HELOC and just pay the min payments on what she draws. SO 5k the first year means she'd need to pay back less than 40 bucks/month that first year, and then maybe 80/month after the next draw and so on. After 10 years, when its time to pay back, just re-fi.

OR, a reverse mortgage...but I didnt catch if that's an option or not.

[Robert the Red]

An obvious solution is a reverse mortgage. *A quick run by http://www.rmaarp.com/ says she could draw up to about $700/month, assuming she owns the condo outright. *Or take a lump sum of about $95K, and invest/spend that as desired. *The downside is that reverse mortgages have fairly hefty upfront fees.

[Sam]

Quote:

Originally Posted by youbet My first thought is to tap the equity in the condo for $5K or so annually.* Any thoughts on the best way to do this?* Alternative solutions?

Sell the condo and rent in the same building/area?* At 80 years of age, she could comfortably do a swr of 10%

[youbet]

Thanks........

Between using a HELOC or a reverse mortgage (with lump sum, line of credit or monthly check options), it looks like I've got some research to do! *Thanks for the link! It's been many years since I've had any debt whatsoever, so I'm really green on all this!

Sam......my first thought was to sell the condo and rent, but I got a lot of frowns......* Her condo association allows no rentals. She needs/wants indoor parking which would mean an apartment in a high tier building.* And - what a surprise - she's dead set against leaving "her place" with long term friends just an elevator ride away.* If I can solve this keeping her there, it would be for the best.* Still, I need to research what's available on the rental market aimed at seniors still driving and living independently.* *

[Sam]

Quote:

Originally Posted by youbet Sam......my first thought was to sell the condo and rent, but I got a lot of frowns......

I understand.* Financial decisions are usually muddied by emotions, sometimes valid, sometimes not.

Quote:

Originally Posted by youbet Her condo association allows no rentals.

Is that even legal?

[youbet]

Quote:

Originally Posted by Sam Is that even legal?

I assume so......... Her condo association voted a change to the bylaws several years ago making rentals a no-no. Current tenants had until the end of their lease to move out. Owners either had to occupy or sell. We were in favor of it at the time since a few rentals were youngsters who made a lot of racket for a building filled mainly with seniors. MIL never questioned whether it was legal or not........ she was just glad to not have the the two noisey Harleys parked next to her in the garage!

[Brat]

Her parents may have lived until their late 90's but she probably won't be able to live at home without help that long.

If family members can aford the loss of current cash how about doing a family HELOC? Some states may require that loans secured by realestate be filed with the county - do it the right way so that if in the future there is a need for medicaid paid nursing care they don't see a potential pot of cash.

[youbet]

Quote:

Originally Posted by Brat how about doing a family HELOC?* Some states may require that loans secured by realestate be filed with the county - do it the right way so that if in the future there is a need for medicaid paid nursing care they don't see a potential pot of cash.

Sounds interesting......* But what is the "right way?"* *Would you recommend talking to an attorney to set something like this up?*

[Brat]

I would ask an attorney for advise, and I would go to one who is a specialist in elder law. The reason for this type of specialist is that s/he would know the ins and outs of medicaid should that ever be necessary.

Essentially this would be a family-funded reverse mortgage. Try to structure somenthing where the amount can be increased based on her financial needs. Consider the posibility that her needs could eventually exceed to value of the condo.

[2B]

Youbet,

You have someone living beyond their means and they are on a fixed income with little in the way of liquid assets. Assuming the condo is owned free and clear, she doesn't really have enough to fund a long stay in assisted living should it become necessary. There isn't any government assistance for assisted living.

I'll take a stronger approach to her finances than anyone else has so far. She needs to cut her spending NOW or "the kids" need to pony up more cash every month.

She can not be happy with the thought of moving away from her friends. She can not be happy with selling her car. She can not want to do anything different but the sad truth is that she's broke and getting more so.

Tapping the equity of her condo with any sort of reverse mortgage or HELOC guarantees you will be on the hook for her assisted living and nursing care should she need it. For an 80 year old woman needing LTC is probably almost 50/50 at this point.

You are screwed no matter what you do. My advice -- level with the MIL and fix the situation or you can plan on working as long as necessary so she can continue her present lifestyle. That may only be another 10 or 20 years. Enjoy.

2B

[Brat]

When I read between the lines here I see an elderly woman who is depending on social security to pay her current basic expenses and it isn't enough.* Not an uncommon situation. It is time for her to get real about her economic situation and consider the options.

The issue is what to do so that she can remain in her current home as long as practical.* Some form of reverse mortgage is an option.*

Publicly funded assisted living may well be in her future.* That is why a specialist in elder law should be consulted.* S/He will know the local programs and how people qualify for them.* There are 'look back' periods.* A family funded reverse mortgage may not be wise because it isn't a third party contract.* An elder law attorney will know.

At her age a HELOC where she manages the money isn't necessarily wise because as she gets older it may be difficult to stay on top of details.* Also, she may not qualify because of her income.* If you go that route the $$ should go into a separate account managed by DW or brother.*

[youbet]

Thanks for the responses. It's really been food for thought!

My initial thought was to tap equity in MIL's condo to cover a small gap between her income and her expenses. I appreciate the suggestions on how to get that done and I'm following up.

Some of you also brought up other complicating factors such as how would a HELOC or reverse mortgage impact medicaid or other welfare based programs going forward...... I hadn't thought of that. I Googled up "elder law" and saw that there are many local resources. I'll start making some phone calls to the public agencies and see what I can find out. If that doesn't work, I'll split the cost of a consultation with a private attorney, specializing in elder law, with BIL and see what I can learn there.

Clearly, there is going to be more to this than just figuring the lowest cost, most efficient way to get equity out of the condo.

Again, thanks.

[Brat]

You might also see if there is are special deals for low income elderly with utility companies.* A visit with a senior advocy group may help find other areas where money can be saved - often property tax abatement is available.* Look at her phone bill for other money saving posibilities.* If she only dials a couple long distance numbers you could pre-program her phone so that it uses a dial-around or LD card.* Most condo security systems dial her phone but basic phone service only meters outgoing calls.* Penny here, dime there.*

[Martha]

Brat has good comments, you should see an elder law lawyer. I would think that if you wanted to make a loan to your MIL, like a line of credit, secured by a mortgage/deed of trust on her condo, you should be able to as you would be giving fair value in return for the mortgage. But, talk to the appropriate expert.

[Brat]

There is another program called "Meals on Wheels" in some communities.* They deliver a meal at lunch time almost daily.* If she isn't eating as she should that could cover her basic nutritional needs.

The only reason she may avoid that program is the fear that her friends might think she is poor.* All my other suggestions would not come to the attention of her social circle.

[AltaRed]

Meals on Wheels can be a real good idea depending on the what it means socially in her area. In our neck of the woods, that program is seen as a 'positive' providing nutrition to seniors who no longer have the ability or desire to cook for themselves. In our area, it is not a handout as there is a monthly bill that goes with this...but it is very cost effective, much lower than one could do at home with same ingredients.

My mother is 88 and has had Meals on Wheels for at least 8 years now, if not 10 years. My brother and I convinced her that she had done over 60 years of cooking in her lifetime so now it was her turn to be 'served'. She gets one quite large and nutritionally ballanced a meal each mid-day. She then does something simple by herself for her evening meal. My brother and I can rest much easier knowing she is getting proper nutrition.

[Brat]

In Portland (where I once lived) Meals on Wheels not only brings meals to the homes of the elderly and disabled, it also has a daily banquet in a neighborhood with lots of senior residents. Bud Clark (of "Expose Yourself to Arts" fame) was a volunteer before being elected Mayor. There are times when I really miss the old neighborhood!

[2B]

Quote:

Originally Posted by Brat There is another program called "Meals on Wheels" in some communities.* They deliver a meal at lunch time almost daily.*

This is still just nibbling around the real problem. Her income doesn't cover her expenses.

Tapping equity would cover some of the "short term" issues but it will deplete the only asset available to cover assisted living or nursing care (the "other" curse of being a woman).

From what I've seen, the "entry available" Medicaid LTC facilities are not pretty. The nicer places reserve a Medicaid spot or two (maybe) for long time residents that become indigent.

youbet is trying to "fix" a problem. I'm pointing out a longer term issue that will make the current concern irrelevant.

In my parents and in laws, I've seen a great resistance to any kind of change overtake their mental processes. Despite numerous changes in their heath and physical capacities, my in laws fought every effort to slide them into nice independent living facilities. Even now with my MIL in a nursing home, she still tells my wife almost every visit that she wants to move home. My FIL does the same but he doesn't realize what's wrong with him.

[BarbaraAnne]

Has anyone heard of a Deed with Life Estate?* I don't know the exact details but my husband's cousin used one with his MIL.

I believe what happens is that the property is given as a gift* to the adult child and the parent* has the right to occupy the property until death.* The parent can't sell the property without the adult child's permission and the parent can't be moved from the property without permission.* When the parent dies, the* the life estate ends and the adult child fully owns the property with a stepped-up basis for capital gains.

Supposedly this arrangement avoids the Medicaid problem as the government can't go after the portion of the property that is gifted to the adult child.* They may be able to go after the life estate portion (which is relatively small).*

With this arrangement, the adult child can give the parent the necessary money to support his/her lifestyle and know that in return they will inherit the property upon the death of the parent.*

This is the way I understand it. If anyone else has more knowledge or experience in this area, please comment.