Real Estate

For older home owners with house worth over $500,000, a jumbo reverse mortgage may provide cash as well as some help with estate planning.

Donohue says the really intriguing use of a jumbo reverse mortgage comes in the field of estate planning. In this scenario, a wealthy couple withdraws equity from their home, reducing the value of their estate. They make a gift of money to children or grandchildren through 529 college savings plans or outright gifts.

They also fund an irrevocable insurance trust that buys life insurance on their lives. The trust ownership keeps the insurance out of their estate, and when the couple dies, their children receive the life insurance proceeds tax free. They can then pay off the reverse mortgage and keep the house. Or keep the life insurance cash, plus whatever equity is left after the house is sold and the reverse mortgage is repaid.

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