Advising Aging Parents Facing Financial and Health Crises

[ivinsfan]

You might consider a different outlook regarding Medicaid eligibility. If your parents wound up with a positive balance on the house proceeds after selling, it would likely not endanger a future Medicaid benefit. It would only delay it. That's likely a good thing.

During the period before they spend down to Medicaid eligibility levels they could include in spending needed repairs on the house and car, some basic necessities (clothes, medical durable equipment not covered by Medicare), Medicare supplemental policies, pay off existing medical debt, prepay final death expenses, etc. Your elder attorney will advise you on what spending is allowable during the so-called "spend down" period.

My MIL had about 1.5 years of (frugal) expenses after selling her condo and paying off the reverse mortgage. We were able to accomplish a lot for her during that period. Then she went on Medicaid.

As others have mentioned, get professional advise on this. But do stop wishing for them to be broke now as there are likely benefits to delaying becoming indigent, even if that result is inevitable.

They don't have anything to spend down that's the problem, all the comments about spending down assets don't apply here. The OP says they net less then 1700 a month and have CC debt and no assets over 3 figures.

 

[The Cosmic Avenger]

Living in the house also includes the costs for utilities, upkeep, taxes, HOA fees, etc. Reverse mortgages are generally not a good deal. If they were, ex-movie stars and sports heros wouldn't be promoting them on TV.

Actually, just like most other financial tools, they're just a tool. The terms can be good or bad, but mostly it depends on 1) whether the customer truly understands the terms and implications, and 2) whether the tool will help them do what they want.

For people who are house-poor and feel unable to retire comfortably even after 65, a reverse mortgage can help them live a bit more comfortably, as long as they either do not have heirs, or the heirs really do not expect or want to inherit the house. And like most tools, you may not even know if it's right for you because you can't predict your longevity or the state of the housing market at the time you'll die.

You're right to caution people because, like annuities, the product is often pitched in deceptive ways by people who stand to benefit from the sale, but that doesn't mean that the tool itself is bad, just that it should be considered very carefully.

 

[youbet]

They don't have anything to spend down that's the problem, all the comments about spending down assets don't apply here. The OP says they net less then 1700 a month and have CC debt and no assets over 3 figures.

We were addressing the situation OP described where it turns out there is equity in the house (after reverse mortgage payoff) and his parents do have some positive net worth.

 

[ivinsfan]

We were addressing the situation OP described where it turns out there is equity in the house (after reverse mortgage payoff) and his parents do have some positive net worth.

According to the OP's follow up post the payoff on the RM and the house equity are pretty much equal.

 

[ivinsfan]

Actually, just like most other financial tools, they're just a tool. The terms can be good or bad, but mostly it depends on 1) whether the customer truly understands the terms and implications, and 2) whether the tool will help them do what they want.

For people who are house-poor and feel unable to retire comfortably even after 65, a reverse mortgage can help them live a bit more comfortably, as long as they either do not have heirs, or the heirs really do not expect or want to inherit the house. And like most tools, you may not even know if it's right for you because you can't predict your longevity or the state of the housing market at the time you'll die.

You're right to caution people because, like annuities, the product is often pitched in deceptive ways by people who stand to benefit from the sale, but that doesn't mean that the tool itself is bad, just that it should be considered very carefully.

And also like annuities, the fees and add on costs are tremendous. So most there would think they are a horrible idea. But one must do what one must do...

 

[The Cosmic Avenger]

And also like most annuities, the fees and add on costs are usually tremendous. So most there would think they are usually a horrible idea. But one must do what one must do...

Fixed that for you...

 

[pb4uski]

Take it easy on me , I'm trying to be helpful and add some details about reverse mortgages. Buyer beware on these vehicles is all I wanted to imply.

You could have made the same points without quoting my post, but whatever. FWIW, I agree and am not a fan of reverse mortgages either... and while I like Tom Selleck, his stock went down in my book when I see him hawking them.

 

[Sunset]

All this talk of reverse mortgages made me look, and I was surprised to find some well known names in the business, instead of just companies hawked by ex-actors.

Reverse Mortgage Fees Fall, but Still High

While this RM site suggests the initial cost is "only" 4.6% for their example. The 5% mortgage interest would compound and possibly eat into the remaining value over the years, unless one was lucky enough to be in a hot real estate market that lasted a long time.

 

[youbet]

According to the OP's follow up post the payoff on the RM and the house equity are pretty much equal.

OP thinks at this point the house will net zero. And he pointed out that that situation "bodes well" for Medicaid eligibility.

I've been reassured there is no other debt than what I initially described, and after doing some quick Zillow work the rough market value of the house (approx $165K), minus the reverse mortgage (DF isnt exactly sure what the payoff amount is - another issue to be resolved when I travel home soon...) and typical real estate sale transaction costs are about equal. This bodes well for Medicaid eligibility, since any monetary windfall from selling the house could endanger this benefit.

My point to OP (which you seem to be struggling to get) is that if it turns out there is some equity for his parents post sale, that isn't a bad thing. It would likely be beneficial to his parents to have the money to delay Medicaid eligibility.

 

[youbet]

All this talk of reverse mortgages made me look, and I was surprised to find some well known names in the business, instead of just companies hawked by ex-actors.

Reverse Mortgage Fees Fall, but Still High

While this RM site suggests the initial cost is "only" 4.6% for their example. The 5% mortgage interest would compound and possibly eat into the remaining value over the years, unless one was lucky enough to be in a hot real estate market that lasted a long time.

We used a reverse mortgage to help MIL with routine expenses during her final few years of independent living. After looking at alternatives, the RM we found for her seemed like the best solution, all facts considered.

MIL was living in a nice condo in a nice building in a nice neighborhood and had made a number of good friends. She wanted very much to stay there.

Her only ongoing income was SS which for years she supplemented with modest withdrawals from her savings. As the bottom of the savings bucket came into view, we noticed she began to cut back spending in areas we were uncomfortable with such as groceries and personal items. We wanted to help.

So for some time DW and her siblings just gifted MIL some money every month. But the usual family dynamics slowly started to creep in. Who was giving how much? Who visited most often? Who provided miscellaneous help? And MIL, who was quite independent, wanted to regain her feeling of independence and arms length relationship with the kids regarding finances.

We found her a reverse mortgage that was a line of credit accessible via a checkbook. She paid her HOA fee and some utility bills from the checkbook and that seemed to fix her day-to-day money problems. A few hundred bux a month I guess.

When she needed to move into a NH, about one-third of the condo's equity (there was no mortgage) was consumed by the RM payoff. The remaining two thirds paid for 1.5 years or so of NH expenses and then she went on Medicaid.

The RM was certainly not the cheapest way to get her access to cash. But had it been cheaper, that would have only meant she would have been private pay at the NH for another month or two. This type of RM gave her a lot of independence to not feel she was relying on the kids. And DW and her sibs could consider whatever they provided for their DM as gifts and not obligatory payments they had signed up for. Much, much better family dynamics.

Like annuities, RM's have a long list of cons and a few pros. And you really need to understand the choices among RMs, the potential outcomes, and the benefits and traps of each type, the costs and all that. In our case, it worked fine as it gave DW's siblings and their DM an arm's length financial relationship between them all while solving the issue of not having their DM cut back on non-discretionary spending.

Sorry for taking the thread off target..........

 

[ivinsfan]

We've kind of gone off the rails with all the RM posts. To get back to the OP, his parents did the RM and owe approximately what the house is worth on the RM.

If it's true that Mom can continue to live in the house after Dad passes this would be a big factor in potentially keeping Mom's expenses lower. That could be a good thing for Mom since she has live in relatives to help with her care if need be.

 

[Amethyst]

The RM idea seemed to me a knee-jerk reaction to the sudden appearance of an expense (I would rather not be specific). Person says they could never get a conventional loan, which, given a paid-off house, seems very odd to me. Why couldn't they get a HELOC?

Person was venting, very hard-headed ("can't" do this or that for reasons you might consider trivial). However, they tend to respect my common sense, and I have always been able to plant seeds of ideas with them. So, if a RM is the only solution, I wanted to be sure they are aware of the risks.

These things are a little more simple when it's just one person. Do you know about a possible RM because they asked you an opinion? I find people I know with large financial problems only tell you part of the whole story when they ask me for an "opinion" so I generally don't have an opinion to give them.

 

[daylatedollarshort]

We've kind of gone off the rails with all the RM posts. To get back to the OP, his parents did the RM and owe approximately what the house is worth on the RM.

If it's true that Mom can continue to live in the house after Dad passes this would be a big factor in potentially keeping Mom's expenses lower. That could be a good thing for Mom since she has live in relatives to help with her care if need be.

I think that is where it would be good to consult the elder care attorney on all the long term ramifications of the reverse mortgage, since there are relatives in the house and the future scenarios of one or both parents passing or eventually needing Medicaid paid for LTC (which qualifying for would be both income and asset based).

 

[daylatedollarshort]

I thought of one other thing that might be helpful on the budget front. It may be hard for the parents, who are used to being the elders and giving their children advice, have the kids make their budget, but perhaps if a third party stepped in like a social worker, senior center volunteer or a CFP they might be more amenable to assistance from a neutral third party.

 

[ivinsfan]

I thought of one other thing that might be helpful on the budget front. It may be hard for the parents, who are used to being the elders and giving their children advice, have the kids make their budget, but perhaps if a third party stepped in like a social worker, senior center volunteer or a CFP they might be more amenable to assistance from a neutral third party.

It's always good to make it less personal and it would good if they could do some of it with volunteer efforts. For example paying a eldercare lawyer to help you with a budget could get pretty pricey.

 

[daylatedollarshort]

It's always good to make it less personal and it would good if they could do some of it with volunteer efforts. For example paying a eldercare lawyer to help you with a budget could get pretty pricey.

At least one of our local senior club's has services like trained peer counseling with volunteers plus free care management programs that I assume must include help with finances.

 

[ivinsfan]

At least one of our local senior club's has services like trained peer counseling with volunteers plus free care management programs that I assume must include help with finances.

Would need to be virtual which hopefully can be accomplished..

 

[pb4uski]

I thought of one other thing that might be helpful on the budget front. It may be hard for the parents, who are used to being the elders and giving their children advice, have the kids make their budget, but perhaps if a third party stepped in like a social worker, senior center volunteer or a CFP they might be more amenable to assistance from a neutral third party.

Rather than frame it as a "budget" frame it as an analysis of their spending. There are obviously some non-discretionary items that are just factual like property taxes. Other non-discretionary items that vary a bit but are reasonably estimable, like electricity, groceries, etc. Hopefully it will help them understand the cost of necessities in relation to their income and any excess is available for other stuff.