Planning for your retirement can be a lot of fun as you anticipate an extended period of time that will be yours and yours alone. Most of us have many things on our “to do” list and it is exciting to have the opportunity to do some traveling and otherwise do things that we never had the time to do while we were engaged in our careers. However, when you’re making plans for the future, it is important to remember the time that will follow your active retirement years.
Many people are not aware of the fact that it is actually likely that you will someday need some form of long-term care. Statistics that are provided by the United States Department of Health and Human Services indicate that seven out of every 10 people who reach the age of 65 will eventually need long-term care. The costs associated with long-term care are considerable, with the national average charge for a year in a private room in a nursing home exceeding $80,000. If you were to spend two or three years in a nursing home at the end of your life it could certainly have an impact on your estate.
One possible solution that works for some people who are planning for long-term care expenses would be to take out a federally insured reverse mortgage called a home equity conversion mortgage (HECM). With these loans you are receiving payments in return for equity in your home, and the only requirements are that you must be at least 62 years of age and have significant equity in the house or own it outright. When you die or move, the loan becomes due.
You could use the funds that you received from the reverse mortgage to pay for long-term care insurance. Should you be forced to move from the home because you needed such care, the costs would be paid by your insurance coverage. You could then sell the home and use the proceeds from the sale to pay off the HECM. Of course you keep the remainder that’s left over after paying off the debt.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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