Today's Question of the Day on is Answered by Two (2) Elder Care Experts

Question:  “My 80 year-old, widowed mother is selling her large home and plans to move into a smaller, more manageable residence.  She hopes to be able to stay in her new home the rest of her life. She is in reasonably good health at this time and has long term health care insurance to help pay for future needs. She has a comfortable savings, but is not wealthy.  Half of her assets have been placed in a trust and the remainder is available for her use.  With the sale of her current home she will be able to buy her new home without taking out a mortgage, but we do not know if that is the best option.  What advantages/disadvantages are there to her paying-in-full for her new home or getting a mortgage?  Should the new residence be purchased by the trust?  Is there any reason she should rent versus buy? Any suggestions will be appreciated.”

Answer:  Hello and thank you for your question.  It is wonderful that Mom is still going strong and has planned well for her later years. We see the majority of older American’s wanting to age in place and her long term care insurance will be a great help to her when she needs the in home assistance.  There is not a standard answer to the question of mortgage vs. no mortgage or rent vs. buy and is individual for each person and/or family.   Here are some thoughts/questions for comparison purposes to assist you in choosing the best solution for Mom.  What are the closing costs related to having a conventional mortgage vs. a cash transaction, how much cash down payment was used, what is the monthly payment with taking a conventional mortgage, what is the property tax amount, homeowners insurance amount and if applicable, a homeowners association fee, does the use of this cash have an impact on any cash reserve for an unseen emergency, how does the monthly payment of rent compare to a mortgage payment- is it less or more and last but not least, who will assist Mom in the maintenance required in homeownership.  Perhaps a family discussion with Mom will help clarify everyone’s understanding of the differences. The real estate property can be put into the trust with either a mortgage or cash transaction and is subject to lender approval if obtaining a mortgage.

Laurie A. Libby, Reverse Mortgage Advisor
Genworth Home Equity Access, Inc.
Irvine, California  92614
Member of the national ElderCare Matters Alliance, California chapter


Answer:  Your Mother is lucky to have so many options. It is difficult to give you an answer to such a broad question without some additional information. I will assume a few things in order to give you a general answer.

The first assumption I am going to make is that the Trust you are referring to is an Irrevocable Trust instead of a Revocable Trust. I am making that assumption since you have indicated that half of her money is in the Trust and the other half is available for her use. If the Trust was a standard Revocable or Living Trust the assets and monies held within the Trust would be available for your Mother’s use. On the other hand if you had some asset protection planning done in the past with an Elder Law Attorney the creation and funding of the Irrevocable Trust would protect that half of her assets from both Probate and from Long Term care costs; however the principal of the Trust would not be available to your Mother.  I am also going to assume that you mean your Mother has long term care insurance, and not simply health insurance. If it is long term care insurance, it will pay for her care up to a set dollar figure per day for a number of years, typically 3 to 5 years.  This is a very important distinction, since if she only has health insurance, such as Medicare Part A and part B, along with a Supplemental insurance policy, that insurance will cover her medical needs and hospitalization, but not long term care costs beyond the 100 days of Medicare rehabilitation.  The availability of Long Term Care Insurance makes Asset Protection planning easier to accomplish even for a person of limited means. It is important that you confirm that your Mother’s Trust is an Irrevocable Trust and that she does in fact have long term care insurance.

Assuming it is an Irrevocable Trust, and that your Mother does have long term care insurance, and then you may want to purchase the house outright and place it along with a certain amount of the proceeds or other assets into the Irrevocable Trust. You need to have an analysis completed by an Elder Law Attorney to confirm that your mother will have sufficient funds for her care to cover the look back period which is currently 5 years, so that if she needs to apply for Medicaid she can do so without a penalty period.

I strongly recommend that you retain an Elder Law Attorney prior to deciding on how to proceed. If done correctly your Mother will be able to protect some assets for you and the rest of the family, while making sure that she is never left unprotected. However, these are complex analyses which require a great deal more information than you have provided.  If done incorrectly you could jeopardize your mother’s potential care. I suggest that you look on to find the name of an experienced Elder Law Attorney in your area.

James C. Siebert, Esq.
The Law Office of James C. Siebert & Associates
Arlington Heights, Illinois  60004
Member of the national ElderCare Matters Alliance, Illinois chapter

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