Case Study: Reverse Mortgage for Estate Planning

Reverse mortgages can be used for more than just supplimental retirement income. The following is an example reverse mortgage scenerio that shows how reverse mortgages can be a powerful estate planning tool.

Sample Reverse Mortgage Case Study

A 75 year old widow with significant assets looking for a way to pay for an insurance policy that will transfer more of her weath to the next generation, without affecting here current income.

Her assets include a $750,000 home (her primary residence), $1,000,000 municipal bond portfolio (herprimary income source), and a $500,000 IRA (from her deceased husband) . She draws $75,000 a year from the municipal bond protfolio, minimum distributions from the IRA, and her social security.

One solution is for her to take out a reverse mortgage. She would recieve $224,657 from the reverse mortgage and use the loan proceeds to purchase a single premium immediate annuity, with the annual net after tax payment equal to approximately $20,000. This $20,000 will be gifted to a Trust. A life insurance policy in the amount of $600,000 is purchased inside the Trust using these gifts.

The reverse mortgage's financial impact to the estate is significant. The reverse mortgage itself will reduce the taxable portion of the estate, while the purchased Life Insurance will increase the non-taxable portion of her estate. This usage of a reverse mortgage will greatly increase the amount of wealth she will be able to pass on to the next generation.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.