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 $10k of work today which has been deferred for years.
Any suggestions relative to a financial advisor who specializes in these situations and can provide them with a comprehensive view, and unbiased opinion, of all their options? They have asked for input from family members, but there is often too much emotion involved for construction discussion.
my crystal ball sees 2 big issues:
1. - property is pretty high value, at 600-700k. For most states LTC Medicaid program, property value has a max limit 500k -575k. Over that your toast on eligible for Medicaid. A few east coast states have this higher, like 700/750k. You need to find out ASAP just what their state has as property max limit. Cause IF it’s over the Medicaid limit, they will never NEVER ever be eligible and will be a true panic inducing crisis when they need to go into a facility.
Perhaps use this as part of the rationale to sell the house.
2. - HELOC this May not be exactly what is promised......
Yes your folks are limited in what they can get as they are not working so repayment ability can’t be determined via regular sources (like fico score which I think doesn’t count SS$ 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!
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.