Reverse mortgages can help with long-term care, but knowledge is key

A reverse mortgage may be a viable financial instrument to help pay for older Americans’ long-term care priorities, but they — and their implications on entitlement eligibility — need to be fully considered.

This is according to a new column at MarketWatch, comparing reverse mortgage product features to other potential options and enlisting commentary from an eldercare attorney.

A reader concerned about their parents’ cash reserves in retirement wrote to the outlet asking about ways they may be able to cover the costs of long-term care, which they say will be needed by their parents soon.

“They’re not on Medicaid at the moment, but they have a house that has been in a trust for only three years, and their children are named as beneficiaries,” the reader said. “Will we need to sell the house, or can they get a reverse mortgage to pay for their long-term care? Will they need to go on Medicaid?”

While Medicaid may be one of the more viable options, a reverse mortgage is a tool worthy of consideration according to Brian Tully, founder and managing partner at Tully Law Group which specializes in eldercare law.

“You never want a family to run out of money,” Tully told MarketWatch. “You always want them to have some money left, whether it is a retirement account, proceeds from a reverse mortgage they’ve moved to children or a well spouse. You always want to have access to money. Spending everything down is a mistake.”

The column describes selling the home to access equity as an option that “should be the very last resort,” since the home is a valuable asset they need not give up.

“Medicaid rules vary state by state, but in New York, for example, a primary home is exempt from total assets while the individual receiving care is living there, or intends to return there after their time in a nursing home,” the column said.

Limitations on other assets could come into play, however, and selling the home may end up disqualifying the parents from Medicaid. A reverse mortgage could present similar issues, the column said.

“You could get money from a reverse mortgage through a single lump sum, or regular fixed monthly payments, but that again can disqualify your parents from Medicaid eligibility — or require them to spend down those assets quicker than they otherwise would have,” it reads. “Look for a qualified and trustworthy estate or eldercare attorney who can help you make sense of your state’s specific rules.”