Answers When House Rich and Cash Poor

House rich and cash poor is a common expression that describes a number of seniors who benefited by appreciation in home value since they purchased but need cash to handle property taxes, repairs and daily living expenses.  For the person who has been wise enough and fortunate enough to stay out of debt there are some solutions.  Whether they apply in your individual situation depends on your longer term goals and needs.

Here are some ideas.

Private Reverse Mortgages.  If you have an adult child who has enough in assets and is willing to help, a private reverse mortgage that can be prepared at a knowledgeable elder law attorney’s office can secure the child’s loan against almost any creditor (except a prior mortgage) including the government under Medicaid.  A reverse mortgage gives an interest in the property to your child but no payments need to be made until a defined event, usually in the case of a private reverse mortgage, the sale of the house.  This is an advantage over a commercial reverse mortgage that can go into default after a year if you move out even if the property has not sold.  The document would be executed along with a Note and, ideally, along with a Family Agreement.  It is recorded with the Recorder of Deeds as would be any real estate document.  Done properly, there are no Medicaid “gifting” penalties and the child’s interest is preserved.

Sell the house and downsize.  The move could be to an apartment or to a smaller house or condo.  Remember you have no equity in an apartment and you need to budget accordingly.  On the upside, you will likely not have to pay for repairs.

If you move to a smaller house, you continue to have equity but maintenance and tax issues can remain.  It may be disorienting to move but it works for some.

You could take out a commercial reverse mortgage.  Reverse mortgage rules have tightened recently since some consumers signed on without realizing the effect.  Reverse mortgages can provide cash for needed expenses while you still stay in the home but should never be taken out lightly.  You still pay real estate taxes and other expenses on the house.  If you move, such as to assisted living or a nursing home and remain out of the house for a year, the mortgage can go into default.  Your estate pays back the company if you die.  Reverse mortgages are for those who intend to stay in their homes indefinitely.  You need to be 62 or older but the older you are the more you can receive based on the equity in your property.  These are best for people who are older, maybe 75-80 or above, in good health, and need some help to pay household expenses, repairs or medical bills.

Here are other ways in which children can help.

Joint Tenant With Right of Survivorship.  An adult child could buy fifty percent of the value of his parent’s residence and actually pay for it.  This gives cash to the parent. On the parent’s death, the child would become the sole owner of the property.  Since it is possible although unlikely that the child could die first, this probably should be coupled with life insurance on the adult child.

Rental and Contribution to Household Expenses.  A parent could sell her or his home and move in with son or daughter and pay either reasonable rental or contribution to household expenses under a written Family Agreement.   In some cases, modifications or additions are made to the child’s home.  If the parent pays for these, there definitely should be a Family Agreement in writing.

Life Estate.  Mother could sell her home and move in with son or daughter.  She can, without losing her right to Medicaid benefits later, buy a life estate in son or daughter’s home and pay them for it provided she lives there for at least one year after the purchase.

In our experience, these are only a few common ideas.  Each family has its unique issues and answers can be customized to their needs.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

follow me on:

Leave a Comment: