Financial Freedom For Seniors



Estate Planning Using Reverse Mortgages & Life Insurance

Posted by Ricky Rash, CRMS on June 15, 2010 at 11:35 AM

When it comes to the use of a reverse mortgage as a funding source for financial/insurance planning, I get a lot of questions and inquiries about long-term care insurance and taxes, but a surprising few about life insurance. What you might find interesting is how large the 62-year-old and older life insurance market is. What makes this so exciting is that the opportunity to sell life insurance in the senior marketplace would be so much bigger if more life insurance agents were made aware of the potential source of funding that can be tapped into via a tax-free Government-Insured reverse mortgage.


What we have here is a triple-win situation -- seniors who would like to buy life insurance, but don’t think they can afford to; life insurance agents that would like to provide a product to those seniors; and reverse mortgage advisors who can provide both the life insurance agents and seniors with the key to solving the funding problem.


Just how you go about this is up to you, but allow me to give you three different situations in which I was involved with two different financial/insurance planners. All three resulted in the placement of life insurance funded by a reverse mortgage:


The first case involved a 70-year-old widow in Margate, Florida who has two sons, both of whom live in different states. She has more than enough annual income to meet her needs and she didn’t have any significant assets other than her home, which was paid for and had a market value of $200,000. She wanted to leave her sons the house, but realized that neither would ever live there, and the house would end up being sold, after which they would get approximately $100,000 each. She also had a great desire to leave her college alma mater something as a legacy, but didn’t see how she would ever be able to afford to do so. We were able to use a reverse mortgage to provide her with a guaranteed lifetime income that will provide her, after tax, a life insurance policy with a death benefit of $303,756. The policy then listed three primary beneficiaries who are entitled to $101,253 tax-free income each upon her passing. Her sons will end up with at least as much as they would have from selling the house and her beloved college will receive a nice donation in her name.


The second case dealt with a 68-year-old man in Boca Raton, Florida who has three daughters, each of which expects to inherit one-third of his million-dollar portfolio. This represents his total estate with the exception of his house, which was valued at $275,000. In addition, he also has a special needs grandson that he wanted to make sure was taken care of. Unfortunately, two of the daughters were not really open to the idea that they would lose part or possibly all of what they saw as their rightful inheritance. What we were able to do was to introduce the idea of using a reverse mortgage to fund a life insurance policy, which would be put into a trust for the grandchild. We made sure that this reverse mortgage will provide him with lifetime distributions that will produce the annual premium required to put a $249,000 life insurance policy in place for the grandchild.  All family members were taken care of and the client was able to quell any financial disputes going forward.


The third case in which we used a reverse mortgage to pay for a life insurance policy had to do with a retired couple living in Aventura, Florida. At the time, he was 72 and she had just turned 71. Although their estate is worth approximately $3.6 million, they live comfortably on distributions from their retirement accounts and social security. What they wanted to do was to leave money for their local congregation without reducing the amount they intended to leave their children. This case required some advanced estate planning, during which we reached the conclusion that by using a reverse mortgage, they will be able to leave their temple a significant gift, which will not only provide them with a significant tax write-off, but also reduce their overall assets when totaling up the size of the estate. Being that we are in a time of uncertainty as to what future estate taxes will be, they found the Reverse Mortgage/life insurance solution very attractive -- we were able to use the tax-free funds freed up by a reverse mortgage to put a $364,948 second-to-die policy in place.


I could recite several more examples, but the bottom line is that there is a huge market out there comprised of people who own homes, are over 62 years old, and want/need life insurance for estate planning and other purposes. In turn, those in the reverse mortgage field have an unlimited number of common prospects with life insurance salespeople, and those of whom are willing to take the time required to build some bridges will most likely benefit greatly from their efforts.   The key is understanding your clients needs, education and patience.  Most people view reverse mortgages as a product for the needy or cash strapped, and not as a wealth planning tool.  This couldn't be more further from the truth, as tens of thousands of people are learning how to unlock the "trapped equity" in their homes and create a legacy for their children and grandchildren for years and years to come.

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Reply James Morgan - Puritan Financial Advisor
5:59 AM on August 27, 2010 
The key is understanding your clients needs, education and patience. Most people view reverse mortgages as a product for the needy or cash strapped, and not as a wealth planning tool.
Reply Geraldine
8:08 AM on March 3, 2013 
Great post. many senior are going to find this. Search Reverse Mortgage Lenders Direct to find top ...
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Interesting! Worth the read!
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