HELOCS and Early Retirement?

[RetireBy90]

I had a HELOC with the old Wachovia - now Wells Fargo. This was in the wild days, but they charged nothing and gave me a $100K then upped it to $250K. No closing costs. While I do like the Penfed, and do much of my savings there, I like the idea of having a person I can go sit down and talk to when needed. I moved couple years ago, so had to close the HELOC and don't have one currently. However, I'd suggest checking out a bank along with Penfed. One other option, I was looking at a rental last year, and needed to be able to put $50K down in short time if the deal came through. Penfed gave me a personal line with little hassle and it still sits there approved. Since it is un-secured it would be more expensive than HELOC but if you plan to use it only short term the costs wouldn't be that expensive.

[Wrirya]

Quote:

Originally Posted by Nords Any of you attorneys on the board care to weigh in on the ability to pierce a trust set up for these purposes?

Come on attorneys.. I would love to hear your thoughts. I currently have a loan on my home but this year it will be gone. I am not sure what tondo to protect my home once it paid off. Lots of ideas but have not made a choice yet.

[skipro3]

Quote:

Originally Posted by Wrirya Come on attorneys.. I would love to hear your thoughts. I currently have a loan on my home but this year it will be gone. I am not sure what tondo to protect my home once it paid off. Lots of ideas but have not made a choice yet.

If you haven't already, you should really meet with an estate planning attorney. He should be able to set you up with a family trust, durable power of attorney for medical, durable power of attorney for financial, a living will and a final will. Cost is usually around $1500 to $2000 and they handle all the paper work.

Here's the guy I used for an example;
http://drobnylaw.com/

Here's a page from his site on "Designating a Trust as Beneficiary of Individual Retirement Account Benefits
http://drobnylaw.com/ira1.html

By having your estate in a trust (including your retirement savings) you won't loose it all if you get seriously ill or incapacitated in order to qualify for Medi-Cal
http://drobnylaw.com/medical.html

If you have dependents / children, you really should consider a conservatorship
http://www.drobnylaw.com/articles/cs...cle.012010.pdf


Unlike a financial planner, an attorney has a fiduciary responsibility to you, not him.

Having all your assets protected by placing them in a trust is a pretty good thing to do. Remember O.J. Simpson? He lost the civil suit against him for the wrongful death of his ex-wife. The judgement was for millions of dollars. But old O.J., he's out there on the golf course, living life large and the victims can't collect. Why? Because he has his assets in a trust fund. A civil suit is for only personal assets. A trust is not a personal asset. Hence, they can't be touched by anyone until the money is pulled out and put into a personal bank account.

[Wrirya]

Quote:

Originally Posted by skipro3 If you haven't already, you should really meet with an estate planning attorney. He should be able to set you up with a family trust, durable power of attorney for medical, durable power of attorney for financial, a living will and a final will. Cost is usually around $1500 to $2000 and they handle all the paper work. Having all your assets protected by placing them in a trust is a pretty good thing to do. Remember O.J. Simpson? He lost the civil suit against him for the wrongful death of his ex-wife. The judgement was for millions of dollars. But old O.J., he's out there on the golf course, living life large and the victims can't collect. Why? Because he has his assets in a trust fund. A civil suit is for only personal assets. A trust is not a personal asset. Hence, they can't be touched by anyone until the money is pulled out and put into a personal bank account.

I have done all of that and meet with the attorney annually, my understanding of the OJ is different, my understand is the money they can not get to is the NFL pension. I realize the pension and retirement funds are protected form creditors, BK, law suites ect. I am not as convinced the trust will do that. I have heard differing sides and a whole lot of rumors nothing concrete. I also believe that attorneys are salesman and want to sell their time. Also if you ask enough attorneys you will get different answers. I call that opinion shopping. Just my two cents

[skipro3]

Pensions are pretty much untouchable. I had my home burned down by an arsonist. Lost everything and a person died. The arsonist has a pension. While the judge awarded me financial restitution for many 100's of thousands of dollars, I'll never see any of it and the pension is untouchable.

Also, having your home in a trust avoids probate. It must be deeded to the trust and titled to the trust.
http://www.drobnylaw.com/articles/re...2011.final.pdf

Regarding attorneys being salesmen, in this instance, the attorney is paid a flat fee. I paid a flat fee anyways and he doesn't charge me for minor changes; say I open a new bank checking account. I open it in the trust name and he adds it to the documentation.

[Wendy]

I figured I'd post my question here instead of a new thread. I'm also considering PenFed's 5/5 HELOC to serve as a source of emergency cash if we need money before we can tap our IRA money in about 5 years. We'd be fine with a limit of $50k or whatever we can get without closing costs, and would be unlikely to need it until 3-4 years from now, if at all.

So this HELOC sounds perfect, except someone cautioned in another thread that some people have trouble drawing their money when they need it. (http://www.early-retirement.org/foru...-er-60061.html) Has this been a problem with PenFed? The comments here all seem positive.

Our alternative is to take cash-out when we refi our mortgage, but I hate to borrow money that I might never need, despite the low rates.

[Nords]

Quote:

Originally Posted by Wendy So this HELOC sounds perfect, except someone cautioned in another thread that some people have trouble drawing their money when they need it. (http://www.early-retirement.org/foru...-er-60061.html) Has this been a problem with PenFed? The comments here all seem positive.

Not so far, but several HELOC lenders froze or even reduced the limits on HELOCs during the credit crunch. I think the HELOCs were frozen because the lenders were running out of liquidity, not the homeowners.

I don't thing a retirement would cause PenFed to declare an individual credit crunch... we've refi'd several times over the last 10 years of ER and all the lenders care about is the cash flow from pension, interest, & dividends. They care nothing about assets, even if you have enough assets to pay off the mortgage.

Six or eight years ago, Fidelity used to offer a mortgage secured by the value of an investment portfolio-- effectively a fixed-rate margin loan for buying real estate. That stopped in a hurry when home values began dropping.

[Wendy]

Thank you, Nords. I don't know how PenFed would view our post-DH-retirement cash flow, since it's less than our current income but still reasonably good. I guess we'll have to live with the HELOC freeze risk, although it sounds like it might more likely with banks vs. CUs. If only I could reduce all my risks and predict the future, then I could really sleep at night.

BTW, I have enjoyed reading your posts here over the past five or so years. If it wasn't for all the discussions about carrying a mortgage into retirement, I probably wouldn't feel as comfortable with the idea as I do (although ours is 10 years, not 30). Now I view it as a cash flow management tool more than a weight around my neck, or something equally daunting.

[Nords]

Quote:

Originally Posted by Wendy Thank you, Nords. I don't know how PenFed would view our post-DH-retirement cash flow, since it's less than our current income but still reasonably good. I guess we'll have to live with the HELOC freeze risk, although it sounds like it might more likely with banks vs. CUs. If only I could reduce all my risks and predict the future, then I could really sleep at night. BTW, I have enjoyed reading your posts here over the past five or so years. If it wasn't for all the discussions about carrying a mortgage into retirement, I probably wouldn't feel as comfortable with the idea as I do (although ours is 10 years, not 30). Now I view it as a cash flow management tool more than a weight around my neck, or something equally daunting.

Thanks!

I think a conservative assessment of the risk would be "once every 20-30 years." But I'd never heard of it happening before.

[Wendy]

Quote:

Originally Posted by Nords I think a conservative assessment of the risk would be "once every 20-30 years." But I'd never heard of it happening before.

I can live with a 20 year risk event. And I assume you mean you never heard of PenFed freezing credit. Just in case, I'll keep in mind that the HELOC isn't a sure thing and make sure we have other options lined up.

[tryan]

Get the HELOC before you leave work ... chances are adding it will not be a option in retirement (been there done that).

[Wendy]

Excellent advice, thanks. I'm applying this week.

[Finance Dave]

Quote:

Originally Posted by tryan Get the HELOC before you leave work ... chances are adding it will not be a option in retirement (been there done that).

That's a good point. We have a HELOC, opened a year ago. I think it's good for 7 years? Let's assume I plan to FIRE in 6 years...I may want to go back and "renegotiate" it before I FIRE?

I don't think it will really be an issue for me...as I plan to FIRE sooner than that...but just understanding makes me feel more empowered.

We're using a part of the HELOC now for a rental mortgage...but still have about $100k left on it that we could tap if needed.