Can Reverse Mortgages be used for gift giving?

Yes


Reverse Mortgages are an excellent tax tool that enables seniors to use the equity in their homes as a gift for whatever purpose they wish. The reverse mortgage is a loan, so the money received is not taxable. You can use it for whatever purpose you wish.

Not everyone wants to leave a large estate. The reason for this is not that they are selfish, it may be a very smart move. Estate taxes are a serious hit to the remaining net worth of an individual who has passes away. Some seniors choose to put that money to work in the way they want while they are still alive.

Please note that there may be some tax issues with giving large amounts of cash to a single individual. You should consult your tax professional about gift taxes before writing a large single check to a single individual. You will not have any tax penalties, but the recipient of your gift may be taxed, check with your tax professional.

That having been said, the senior is free to do whatever they want with the money and there are no negative tax ramifications to their returns because it is not assets, but rather a debt. In fact if you give the money to a non-profit or charity, it could actually have a positive effect on your return if you are claiming a significant amount of income for that year.

Some of the ways in which seniors are putting their Reverse Mortgage income to work are :

1) Helping a child or grand child start a business or go to college. (Giving the money out in small checks as the tuition becomes due, or as the business buys equipment)
2) Giving money to a church or hospital to add equipment or build an extension. (Directing the purchase of the equipment or the construction of the addition)
3) Funding food and shelter for the humane society. (Paying small amounts each month as the shelter takes in more animals, buying a small piece of property to build a shelter, or directing the construction of additional animal houses within the shelter.)
4) Paying for a Habitat for Humanity home to be built in another state or foreign country. (Traveling to the location, helping with the build, and personally paying for the materials on location.)
5) Helping a loved one with medical care. (Personally helping to set up quality care and housing for a relative.)

As you can see the one common thread is that the senior gets to direct the use of their funds rather than just spreading the money out without responsibility or direction after they pass away. Not to mention the fact that the estate saves the tax amount of that portion of the home's value.

The key is that estate planning , gift giving, and sharing your wealth with others can be done, in part, while you are alive by using the equity in your home.

Please note that for seniors who are worried about their own future health care and well being, we suggest that you keep the money from your reverse mortgage and have it start working for you. But if you have retirement funds and other accounts that will be there for you when you need them, a reverse mortgage is a great way to get cash out of your home without a mortgage payment, and keep the house for the rest of your life. What you do with that money is your business and your pleasure.

Enjoy.

Bob Fisher
bob@az62.com
623-214-6663