How A Reverse Mortgage Can Equalize the Distribution to Heirs
By David Brown
We hear and have seen when the last parent dies, the subsequent concern of equal distribution of the estate proceeds among the siblings and family heirs. Before this happens, take this into consideration. One parent has died and the pension and social security goes away as well. Accordingly, the surviving parent needs financial assistance each month to cover the small mortgage and other costs to maintain their own health and lifestyle. One of the four siblings will have the ability and heart to offer their parent a $2,000 per month allowance to assist with expenses and needs. Let’s say this continues for another 4 years before this parent also dies.
The heirs/children read the will and the $500,000 estate is to be divided equally 25% to each child or $125,000 for simplicity sake. But what about the child who gave the parent $2,000 per month for 48 months and would like to get some or all of this out of pocket cost back? They are out of luck even though they advanced the parent $96,000 over the last 48 months. They are only entitled to their 25% of the estate or $125,000 for a total net inheritance of $29,000 while the others each have a net of $125,000. Regardless of any other circumstances, in this scenario, there will be some resentment and hurt feelings by this good hearted child who just wanted to do the right thing on behalf of their parent.
If the parent had gotten a reverse mortgage rather than assistance from the generous child the outcome would be significantly different without any resentment or hurt feelings. With the reverse mortgage the parent could withdraw the $2,000 per month as needed. When the parent dies they would have withdrawn the same $96,000 plus interest of say another $4,000, so the net estate is $500,000 less the reverse mortgage and interest of $100,000 or $400,000. Now each heir will net $100,000 based on the same will. This has made the distribution of the estate equitable to all and took care of the parent while alive.
If you’re that good hearted child with a parent in this situation, educate your parent and siblings on the value of a reverse mortgage before you commit to the out of pocket monthly allowance. The parent will feel more independent knowing that they are not a burden to the children. In addition, the good intended child will not have to deal with any resentment of other siblings for actions on behalf of the parent. A win-win with family harmony. What could be better?