Life Estate VS Reverse Mortgage
By Jim Palmer Jr.

Recently I helped an elderly gentleman who had a stroke and could no longer remain on the remote property where he had lived for more than four decades. When questioned about using his property as an asset to help fund his new assisted living arrangement, he said he had not owned his property for several years. He had in fact sold the property to a neighbor who had in turn granted him a Life Estate, which means even though he was no longer the owner, he could live on the property rent free until he died or moved out. Since he had recently become incapacitated and unable to live in such rustic circumstances, the property would soon be relinquished to the new owner.

At first glance, some may think he had been taken advantage of. That would probably only be true if the neighbor had paid much less than market value when that transaction occurred.  The truth is that my friend had been able to continue to live on the property which he loved, and upon the sale he had pocketed a stash of cash that could now be used to supplement his income. He didn’t have to pay property tax anymore nor did he have the burden of monthly rent. It was a win for the buyer too, because they had been able to purchase the property to protect from further residential encroachment, and even though he was not able to take possession of the property until the seller died or moved out, it was still a definite advantage for him. While the possibility exists for an elderly person to be duped into selling for less than market value, a Life Estate could be a great tool to allow them to use their home equity for their immediate sustenance needs. The only disadvantage is that there would be no remaining equity for heirs.

A reverse mortgage has similar benefits for elderly home owners with several striking differences. The lender usually only lends a portion of the actual value (approx. 60% of value) where a life estate recipient usually pockets closer to the market value. Under the terms of a reverse mortgage, the owner must still pay taxes and must continue to maintain the condition of the property.

Whichever tool is used in this type of scenario, property owners should first consult with reliable professionals who can help them assess property values.