In-laws in late 70s have net worth of $600 to 700k but 99% tied up in house that they own mortgage free. Savings almost depleted and fixed income will not cover basic, recurring expenses. If there are any unexpected expenses for home or health they are even deeper in the red. In theory, they could downsize and buy a nice condo or coop, put some proceeds away and also have much lower monthly costs (given they are currently paying $21k+ in taxes, home insurance, utilities, yard, etc.) on a 90 year old house.
Sale is not being considered however, as they are very slow to purge anything and they are very attached to their home...ie they are no different than many older individuals. Home equity line of credit they qualify for is limited (might last them three years) plus additional monthly payments for the line cannot be covered without outside assistance. Have looked into reverse mortgage but they are very resistant to the $20k closing costs and floating interest rate. There is another product -- Unison -- with low closing costs and no interest...the company invests in the home (no interest accrues) and they take a large % of the appreciation from the time they make the investment until the house is sold. Sounds interesting on paper but there isn't a lot of third party info available on the pros and cons. They do not have a financial advisor, nor do any of their children including me and my spouse/their son. We helped in 2018 with some unexpected expenses and other siblings may have as well, but that is not a sustainable solution given their age and the condition of their house...which probably needs a minimum of $10k of work today which has been deferred for years.
Any suggestions relative to a financial advisor who specializes in these situations and can provide them with a comprehensive view, and unbiased opinion, of all their options? They have asked for input from family members, but there is often too much emotion involved for construction discussion.
Bank may want an estoppel certificate. Fun!
And bank may want for all insurance to have them listed as lien holder...... that’s a butt burn cause say there’s hail damage and it’s 20k for roof work.... well the 20k check from ZXC insurance will be in folks AND banks name. So if it’s like this, usually they have to sign it and then it goes to bank and they have to get estimates to get the bank to release insurance $ to pay the roofer.
We we watched the disastrous Saints game with friends & 1 couple was looking for HELOC to cover increased insurance costs as property value reassessed and over NFIP 250k limits and higher wind pool. They both draw FRA SS. The HELOC paperwork was quite involved. They were expecting what was the norm of check last tax assessor value and do a drive by or Google Earth to see house actually there. She was beyond over the bank.... the needing termite certificate was her “enough” point. They ended up with a better deal on $ lent and interest rate through a credit union. Now the credit union required their SS to be moved over to them for direct deposit but did it as a personal loan with property as collateral. Also they are challenging the assessment and will get it reduced so insurance coverage and taxes will be less.
As an aside on the above, if your in laws house has decades of delayed maintenance, it may actually be way way less than it’s assessed value. Usually you challenge the value in the spring when tax assessor sends out the 2020 notice. You take photos, etc to show it is not what the comperables are. If their place is in an area with lots of tear Downs & rebuilds, the comps are gonna be much MUCH higher. That it’s over assessed may not matter too much for the in laws as their property taxes are fixed for homestead exemption or/& senior rates, but it will matter when they go to sell it or go to have it correctly insured. I’ve challenged assessments and if you bring in documentation or even estimates of what like new to code electrical will cost, you’ll get a reduction. Usually there’s a equation the tax assessor office staff uses.
my crystal ball sees 2 big issues:
1. - property is pretty high value, at 600-700k. For most states LTC Medicaid program, property value has a max limit 500k -575k. Over that your toast on eligible for Medicaid. A few east coast states have this higher, like 700/750k. You need to find out ASAP just what their state has as property max limit. Cause IF it’s over the Medicaid limit, they will never NEVER ever be eligible and will be a true panic inducing crisis when they need to go into a facility.
Perhaps use this as part of the rationale to sell the house.
2. - HELOC this May not be exactly what is promised......
Yes your folks are limited in what they can get as they are not working so repayment ability can’t be determined via regular sources (like fico score which I think doesn’t count SS$ income). But you need to review HELOC requirements very carefully, as there’s fine print in what’s required for LOC. Since it’s securized lending with property used as collateral, they may need to have updated insurance on property. Depending on where they live, could be quite $$ costly. And not at all what they are paying on their current mortgage free home, which may be low & based in value last millennium without 2019 rebuild costs factored in. Where I live (New Orleans Area), HELOC will require usual homeowner at rebuild coverage amt, and likely ALSO flood & windstorm. NFIP flood limited to 250k, ($500-$700 yr) so a 700k home will need $450+ private flood insurance extra coverage which will have a comma in its costs. Windstorm too will have a serious comma in costs. Bank may want pest control/ termite free document. For our area, most have to have a current elevation certificate and verified plat from courthouse and go onto a specific federal form with inspectors seal and state registration info.
And for more fun, banks here do NOT do the tax assessor value & drive by house by 2-step system to determine property value. But actually have an outside independent appraiser physically do a on site measurement of house, land, & do interior walkthrough with photos and use to do a appraisal report to the bank. (Your folks should get a copy btw and you want this cause if house should sell for under tax assessor value that appraisal may help support why it was not able to sell at FMV, which is what Medicaid is gonna want....).
My point in the above is you need to carefully review the heloc as your folks may be hearing what they want to hear and not truly realizing the costly details needed of and ongoing to get HELOC.
For where we are, some who rebuilt post Hur. Katrina & now dz+ years later retiring are finding increasing insurance aren’t supportable once on a fixed income even if mortgage free. Having to get a Heloc to pay taxes & insurance is still debt to be repaid, but better than a RM.
If you’re paying for things, please speak with atty regarding some sort of Memo of Understanding or Promissory Note between you & folks to be repaid from house sale or as debt / claim against their estate. It will need to be witnessed & notarized but should be able to be there to be used / filed should house be sold & you are repaid your lending or as a secure claim against their Estate. Should they ever actually get impoverished enough to be eligible for Medicaid, Medicaid tends to look at whatever $ or time kids spend or do for parents as done for free & for familial duty. Having Memo helps offset that. Should They actually outlive their $ even if they sell house and apply for Medicaid.
To me, FA is not what you need 1st, a NAELA or CELA level of atty would be first stop. They will know FAs who understand Medicaid planning & how it’s different than like selling annuities nonsense. I agree with other on fee for service FA too. & good luck with in laws!
If down the road within the next 5 years, if either in-law needs to go onto Medicaid, Medicaid will see that the in-laws had "gifted" the house to their grown children. Oops. Thus, Medicaid would be denied. The in-laws would need to be self-pay if they need to be in a nursing home. They would need all the equity they can squeeze out of the house when selling to pay for their care.
And you are correct about tax repercussions later down the road, if the house needs to be sold, and everyone's name is now on the Deed. Putting names on a Deed like that, the base used to calculate Capital Gains Tax would go all the way back to when the in-laws had purchased the house. Inheriting the house is the better choice.
IF there are enough issues that need dealing with on the house, a home equity line of credit could help. Yes, it needs to be paid back, but taking enough to make the needed repairs AND enough to cover the payback temporarily might be workable. The danger is if those borrowing are not disciplined enough to manage the funds. It is too easy to spend spend spend on OTHER stuff and not focus on what needs to be done AND paying it back. This would also be a good option if you can convince them to sell/move - getting necessary work done, and "sprucing" it up will increase the chance of sale and possibly bring a higher sale price. We had to do a lot of cleaning, painting, heat/AC replacement and glass replacement (fogging) before selling mom's condo, but resisted the realtor's suggestions about a couple of "outdated" light fixtures and replacing bath counter with granite! Condo sold for MORE than listed price without these "updates"! Saved us a lot not doing those counters!!! But the other work needed to be done in order to have it sale-ready.
The nice things about a line of credit is that only what is needed is borrowed/charged interest, and as the balance is paid down, the balance available goes up. Also, IF the funds are only used to make needed repairs to the home (discipline!), it would be tax deductible. If used to fix up the place before sale, just make the minimum payments. The loan will be paid off at closing.
Clearly the best option would be downsizing, but so long as they remain competent AND resistant, there isn't much you can do. Since you have done up a budget, which shows shortfall, focus on that - keep ramming it home until they realize this is not feasible! Certainly all their children should resist enabling them to remain status quo - aka no funding them! It is fine to assist with things that need to be done, such as painting, minimal repairs, lawn care, if they truly need the help, but not to the point that it takes up all your free time!
For those who insist on hanging on to things, perhaps suggesting storage for "good" items might help them in the decision to down-size. They won't have to part ways with these things. If possible, try to work on helping them get rid of "stuff" that isn't any good (might have to do this when they are out!) Our mother also resisted "cleaning up" and "clearing out". Had no idea how much stuff she had, especially the clothing as I didn't go around checking everything, just tried suggesting clearing out clothes that do not fit. Nope. I keep my clothes nice. Sure, but what good is it if you don't fit in it anymore! Once we moved her to MC, and started cleaning up - oh boy!!! Every closet stuffed full, every box, bag, tote, any kind of storage was enough to open a store!!! FIVE porta-closets!!! We ended up ditching most of the clothes to goodwill, still have to deal with all the shoes and handbags, never mind all the jewelry (mostly cosmetic stuff, not worth much.) Easier to deal with it before if possible. It took us over a year and a half to get it all ready to sell, meanwhile 14k or more a year spent on minimal utilities, taxes and condo fees!!!!
I agree with CM it is stupid to borrow money at that age for a house and lifestyle that you can't afford. They might be happy at that moment, but they're be sorry later!
Sell the house and downsize or your parents will not only be living with you but living off you. Do you really want to financally support your parents? Of couse not!
If you or sibs really have that big emotional attachment to it than one of you needs to move in and take over the house bills and maintenance!
Another way to look at this is from a business point-of-view. Let's say the house is a business and it is cash poor. The first thing you do is start elucidating assets to free up some cash and if that can't be done than you sell the business! Your parents need to free up some cash.
There is no other way around it!
For young adults buying a house, it makes sense to take out a long term loan. Their incomes are likely to rise. They have years and years ahead. They will benefit from the increased equity in the house.
For older people trying to maintain a house and lifestyle that are beyond both their needs and their income, it is STUPID. It is STUPID to borrow money to keep up a house that you do not need and cannot afford to live in comfortably.
What if they outlive the cash they derive from the reverse mortgage?
Why doesn't every one of these products come with a specification showing the exact amount of money to be paid to the finance company in fees and interest?
And - this has got steam coming out of my ears - it will "enable them to stay HAPPY in their own home" Happy? Really? Not increasingly frail, disabled, at risk and isolated?
Reverse mortgage/equity release products are needless debt sold to emotionally vulnerable people through empty promises that prey on their fears. I can't think of a legal financial product that's more cynical in all its premises.
I'm sure there are cases where the sentimental benefits may outweigh the common sense defects (wanting to stay in a certain neighborhood close to friends and family, perhaps), but in general, it doesn't make good financial sense to do a reverse mortgage in your older years.
Good luck
Read Countrymouse’s spot-on posts regarding what the issues are. I don’t know which takes advantage of elders more..... reverse mortgages or those free steak dinners annuities.
In the initial phone call to set up the appointment, Fidelity will ask the size of the assets, but there will be absolutely no pressure to utilize their ongoing management beyond the initial meeting. Best wishes.
You do not need to tell your parents what became of the house just knowing that it went to family should be enough to placate them. If after moving into the Assisted Living, or Condo, or where ever they move if they want to go back to the house just tell them that it is getting the roof done, the house is being painted, , the windows are being done the floors are being done....what ever you have to tell them that they can not go back for a visit.
Midkid is so right. You set the precedent in 2018 of helping with some unexpected expenses. The other sibs may have, as well. As time goes on, though, chances are all sibs won't keep ponying up cash for the elders. Will your H insist on continuing to help them?
NO ONE should be helping them financially. Don't make that mistake again. As long as they can guilt their kids into doing it, there won't be any forward progress made in getting them to be more realistic.
This situation is very reminiscent of my folks. They could NOT keep up their huge house and yard, we were all raising small families and trying to deal with our own stuff--having to give up 4+ days a month to simply keep their lawns mowed and the weeds down was about all we could manage. They 2nd mortgaged the house and gave oldest brother $175,000--and there went any chance at a secure "retirement".
We tried to get them to rent out the basement to a family, which would have helped--in the end, they HAD to sell, under the gun and it was horrible.
Your IL's have a lot of options. But taking money from you kids shouldn't be one of them.
We're in the beginning process of "downsizing"--makes me laugh b/c our house is only 1800 sf, but it's a split entry and I simply do not want to have all these stairs. DH is giving me nothing but pushback---but in the end, I will get my way b/c I am sick and tired of shoveling snow off my car (he gets the garage) and hauling everything up and down stairs all day. I've had a cast on my broken foot for the last 5 weeks and thunking up and down those stairs all day is making him nuts....plus it hurts and it's dangerous, but half of the house is downstairs!
I am taking a page from my g-ma's book. Suddenly widowed at age 61, she took a year to grieve and breathe--then she bravely sold her "dream home" and moved to a condo. Never looked back. I know this took incredible courage and I appreciate it more as I am now older than she was when she did this. She lived 100% independently until a couple of months before her death.
Not planning will result in disaster and sadness--almost for sure. Mother and daddy dragged their feet so much it wound up that they had NO options but to move in with brother. 22 years now. And really. nobody is happy with this.
I am 52 and have a two level house, but I could put in a basement suite that would have ground level access. My plan in 10 years is to renovate the house for a suite, then move into the smaller basement suite. That will give me rental income and a no stairs home. I will still have access to the backyard and will not lose my neighbourhood.
I am not so wedded to living in this house that I would not sell it if that made more sense.
I am faced with that with Mum right now. Step Dad just died and she has considerably less income to work with. She owns her own home. When she complains that she will not have enough money I unemotionally state you have more than enough equity in your house to live very comfortably for the next decade. I do not offer her any financial support.
Mum is showing signs of age related decline, she talks about needing to write everything down on her calendar, but no diagnosed dementia at this point. She is still capable of learning new software on the computer, balance the check book etc. Her mother and mil lived in their own homes until a very short hospital stay prior to death, but she has outlived both of them and most her savings.
She wants to go on a trip with her sister to celebrate their 85 birthday this year. If she sold hte house it would be a no brainer.
Like suggested. Maybe find a place and take them to see it. A nice independent living with activities, outings and transportation. Usually comes with 3 meals a day. Big thing for me would be no cooking.
I would not invest for repairs unless it would really bring in more for the house. If they ever need Medicaid, the house has to go for Market Value.
The only thought I can add is that it is easier to swim TO a nice new place, than it is to strike out FROM a dear old but now uninhabitable country that you are sad to leave behind.
Again, that comes down to finding their next home first, then working out how to get them to move to it.
Help them prepare for that eventuality by asking if you can have this or that that you know they would not take to a smaller house, and dispose of it - donate or sell if you like. If you are ever asked, "I don't know exactly where it is, but thank you so much for that!" The work that needs to be done on the house can be with the line of credit, now, so that the house is ready to be sold. Medical payments can be stretched out over time, but the need for house repair can come suddenly.
Since you are in the real estate field, do you think you could show your MIL some downsizing options? I thought some of the continuing care communities were especially attractive. I think that it's hard to envision a life other than the one you currently live.
Full disclosure: I did this myself. I found a couple of places to show my (almost 90 year old) mother. We did tours and had lunch. It didn't really help. She still lives alone. What can you do?
Outgo is 21K per year.
Do they understand that they are underwater? Or are there cognitive issues in play here, even if mild ones?
Do they have a family lawyer who has any leverage?
Good luck in trying to get your in-laws to downsize. I tried that with my parents, who were in their mid-to-late 90's. My Mom refused. Nope, nada, never. But Dad was ready to move as he was getting too tired of having the responsibility of home owner ship. But he wouldn't leave Mom behind.
Many elders are quite proud that they have a home that is mortgage free... it is a right of passage. That how it was generations ago. No one downsized back then.
Time to set boundaries. If your in-laws need help with household chores, remember it's not everyone's dream to have 2 houses to clean and 2 yards/houses to maintain. That is just too draining. Learn to say "no". They are still young enough to figure something out. Be careful, parents are really good at using guilt to get things done.
I assume the in-laws are living off of their monthly social security and probably a pension or two. Any stock dividends? If they own stock, they can sell it unless the dividend is healthy enough to give them funds.