The Elder Law Forum by Professor Michael Myers Editor's Note: The Elder Law Forum is a public service of the University of South Dakota School of Law, an extension of the SENIOR LEGAL HOTLINE available at no cost to persons 60 and older at 605-677-6343 and firstname.lastname@example.org during regular business hours. The Elder Law Forum delivers information and educational material by radio, a weekly newspaper column, and Law School research papers placed on the USD School of Law Web site. Professor Myers teaches Elder Law at the School of Law.
Outliving the longevity tables
Robert Heilbroner, in his classic, The Worldly Philosophers, observed "That since we came down from the trees, humans have faced the problem of survival," noting what most of us know from experience: "It is hard to wring a livelihood from the surface of this planet."
A 90-year-old caller to the USD Senior Legal Helpline (1-800-747-1895; mmyers@usd. edu) has wrung out a livelihood, in good times and bad, rearing five children, burying three, and being widowed for 13 years.
"I am receiving $910 monthly from Social Security," she said. "I am making it, but it's pretty thin. What can you tell about a reverse mortgage? It would be nice to have a little money to fall back on, in the event the car breaks down, the house needs repair, or some other unforeseen event occurs."
She said her house, worth about $40,000, was free and clear. "A reverse mortgage, or some version thereof, is exactly what you should consider," I advised. At my suggestion she paid a visit to the small-town bank where she has been doing business for 40 years.
She called back, reporting that the bank did not extend reverse mortgages. "But they will give me $10,000 under an arrangement that is not exactly clear to me. Would you talk to the bank on my behalf?"
I did. The banker was a woman who knew the caller in the way people know each other in a town of 900. She had proposed that a $10,000 line-of-credit be made available at a 4 percent rate of interest, with monies loaned on an "as-needed" or "if-needed" basis, using the house equity as collateral.
A reverse mortgage by any other name is in fact a loan. In her case, the line-of-credit could be established without the cost of appraisal and other fees associated with a mortgage. The loan could be structured on the basis of interest-only payments.
The caller has already outlived the longevity tables. Her house is an asset she can continue to enjoy and simultaneously use its equity to ease her concerns about possible emergency expenditures. She has no special wants or needs. She is simply looking for some financial peace of mind.
The loan fits nicely with responsible Medicaid planning. If, over the next decade she needs nursing home care, the state will require that she sell her house as part of the Medicaid spend-down. It is in her best interest, and ultimately Medicaid's best interest, to tap the house equity at her advanced age. The state doesn't need a house with a roof that leaks.