Financial support for a parent--who's responsible?


So, here's the situation:
1. Two elders on their 2nd marriage, living on their own, and five adult children:
2. "Parent A" gets about $1700/mo (social security) and owns the house where they both live. "Parent B" gets about $4500/mo (social security, pension, some other income), just sold the house they owned when the two got married about 15 years ago for about $600K (before taxes).
3. Both signed a financial prenuptial agreement.
4. Both have health issues,"A" moreso than "B". A part-time caregiver comes to the house a couple of times per week, and both parents are splitting the costs
5. All the children believe the parents should move into assisted living (and both parents have longterm care insurance which should cover a large portion of the expenses, although there is a 90-day deductible.
6. "A" has a $100K home equity loan on the house, about three-quarters of which remains.

At this point, based on current expenses (and both parents are reasonably responsible with their money), "A" will run out of money in about a year--which is where the confusion/concern comes in. Who should provide financially for "A"? The spouse? The kids? Does a 3rd party need to come in to figure this out? "A"'s children are both fulltime employed adults; one is pretty well off, but is supporting childen (one of whom has a serious medical issue), and both would obviously like to save for their own retirement. "B" would like to help fund the her children's kids' college education.

Yeah, it's quite a mess. I think you can make the case for a variety of scenarios, but I figured I'd crowdsource an opinion or two. Thanks in advance for your advice.

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Good heavens--I had to look up 'usafruct'... ;) As far as the numbers, the costs on Cape Cod are far less than 14K, but, yes, we know there are various hidden costs. My brother's wife and my partner (we'll probably get married one of these days) seem to be ok; my partner's dad has passed and his mom is in a nursing home (and well-taken care of). And, no, we don't care if we get the house--at least, at the moment.
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AdamBravo - by the "required" I mean the items that the RM does not include in the loan that they (the RM) requires the borrower to pay for on their own. Like taxes, maintenance, upkeep of the property, repairs, insurance (if not folded into the RM and that is usually the most expensive insurance option…..).

What had happened with RM's (and why the feds have restructured the eligibility on those that are federally backed) is that RM were being done on properties that were over appraised and with borrowers with limited income. RM was a band-aid on a much much bigger financial problem for the elder. The RM $ was maybe 50% of a crappy but over appraised house with decades of delayed maintenance. The RM doesn't care as it;s federally backed so if that sucker sold for 50K and the loan out was 100K the feds (& taxpayers) paid the difference. It was in the RM's interest to have defaults as the RM got their $ quicker. Often the homeowner defaulted on the terms of the RM as now the RM sent out a company to do an evaluation on the home after loan issued and finds deficiencies that the homeowner is responsible for paying as it's part of the "required" on the property. Like they drive by and do a deficient roof report and owner has to get roof repaired or replaced and if not they are not compliant for RM agreement and loan gets called in.

New rules now require the borrower to show they have the ability to pay for normal costs on the home and if they don't have the income then they do something like an escrow account for 3 years (I think it's 3) for what those costs should be in order for the federally backed RM to be approved. The federally backed ones now have all sorts of safeguards like house has to be appraised but are harder to qualify for.

You or bro may want to check out the LTC costs in your area and what their polices are for LTC insurance acceptance. My mom;s NH would NOT take LTC insurance at all as the reporting required for the various companies was paperwork heavy and morphing (like having to detail staffing patterns and level of education of staff). Biz office manager said really a total butt-rash and when they figured out staff time taking Medicaid - even at low TX reimbursement rate - was a better deal financially. 4K a mo on a 14K monthly private pay NH is still over 100K annually to come up with for possibly years & years. I'd run the numbers on the RM costs at 2 years & 3 years to see what $ could be there to pay what LTC insurance won't. RM seem to spiral in fees to the point that it's a loosing situation for heirs to pay off the RM to keep the house. I hope they have a good LTC that is simple to benefit from.

Also check to see if it needs to come out of the trust for RM to be done.

Stepmom has a usafruct? or something like a usufruct? We have those in Louisiana and they can be sticky if the later wife decides to just not move, the heirs just have to underwrite the costs on the property if she won't sign off differently. You see it a lot in beach & vacation houses where Dad does a usufruct for later wife but he can tell kids that "of course they will inherit the house". And she literally can have first use on it till she decides differently and they have to pay for all or settle with her financially.

Out of curiosity, how do your wives feel about Dad & his wife and your spending time & $ on them & the house? If your wife or brothers wife takes the stance of quid pro quo that if you doing this for your family that means you do it for hers too, is that an issue?

and last….do you care whether or not you get the house? if at the end of all this, there is no $ left and no reimbursement is the risk such that not an issue?
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Igloo572--regarding Stepmom:
"She has been balking on paying for things to begin with, correct?" Well, 'balking' is probably too strong a word. I think she has been under the impression Dad's been a bit frivolous with his spending, but, looking at his checkbook and charge card, I explained I don't think that's a huge problem (although they could probably cut back on landscaping costs).
"She has her own dementia and competency issues, correct?" Yes, but probably to a lesser extent than Dad.
"What would that do financially for them as they are married." She's also got LTC, for about $4k/mo, which ironically would include in-home care (that she doesn't need).
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Igloo572--to your questions:
1. "Try to pin down just how much the RM would actually pay". It's about 25% of the actual value of the house, and that's after paying off the home equity loan. He could get up to about $2200 per month, or less than that and leave the remainder as a line of credit if needed.
2. Insurance-wise, we were told flood insurance was only required if we were in a flood zone (which I believe we are not). A call to the insurance agent would be appropriate...
3. "Dad will be required to pay all the required on the house from day 1 of the RM." Do you mean closing costs, fees, etc? Closing costs are estimated at ~$10K, and he does have that available.
4. We do have some documentation that would allow Stepmom to stay in the house if Dad passes first for a limited amount of time; I need to check the specifics, but there are terms spelled out in writing. Yes, he bought the house before marrying her; it's in a trust that will come to my brother and me.
5. "If dad should ever need a facility and doesn't have the $ to pay for it and applies to Medicaid, the RM usually is income for them and takes them over the asset / income limited for Medicaid." Dad's LTC will pay about $4000/mo for assisted living/nursing home.

All good questions and thoughts; both my brother and I are also talking to our respective financial planners.
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You know as a insurance aside to this but as I'm on the cusp of the 10 yr anniversary of Hurricane katrina & I'm a a group were we're reminiscing...couple of nasty surprises for homeowners with insurance companies:
- if there was any insurance payouts and there was a mortgage, the mortgage holder got all the proceeds first & foremost. Many folks found themselves with a house no longer there with no $$ at all as the $$ went in full to pay off the mortgage. And for more FUN, some mortgage holders placed a early payment penalty on doing this as the mortgage was done as a usual 30 year loan. For those older on fixed income, there was no way to afford to rebuild what they had if it was in anyway a nicer home as SBA limited to about 220K; 150K or so state grants.
My point is that if an event happens - like a fire at the home - the mortgage holder can get the funds first and then you or your parents have to finance the repairs. If repairs not done, the RM agreement is out of compliance. Someone at the point of needing a RM doesn't have the $ to do this or can qualify for funds.
- RM's were called in. We had friends who's parents were in Lakeview in NOLA which stayed flooded 8' - 14' for weeks. If there was a RM, the mortgage holder sent them a letter to the house - which of course could not be delivered initially - asking as to the conditions on the home and what the return date was. Like they insisted on a letter from Sewer & Water Board as to full functionality. yeah rite, we'll be able to do that…. Well all of this was a total crapshoot for compliance and the RM just called the notes in. They knew that there were insurance payouts happening and their goal was to capture every penny of any insurance. If it left the homeowner with zero so what. Not pretty.

The worst off were homeowners who were underwater on their mortgage and underinsured with a damaged home. They mortgage holder captured all the insurance money and they were left with partial home and still owed the final part on the mortgage. They literally found themselves still owing mortgage payment on a lot that was now requiring renovation to new much more expensive standards. If you had a home that was slabbed (house gone but slab or stairs left), it was now requiring rebuilt elevated 18' - 22' BFE. Alot of folks just had to let it be foreclosed upon as no $ to rebuild and their credit worthiness was shot. You can drive around right now on in St. Bernard parish & the MS coast counties especially and see post Katrina slabbed properties still a decade later as there just was & is not the $ to rebuild.
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Deb, perhaps you're right. My impression was that this was, as Adam described it, a "viable" option. I stepped in, and I imagine Igloo did for the same reason, to share our opinions that it's really not a viable or good option.

From one of Adam's posts:

"6. Finance-wise, we had someone come in and talk to us about a reverse mortgage, which seems viable in the circumstances. Dad is reluctant--doesn't want to 'risk' the house (although he's already got a $115K home equity loan signed out). I suspect the longterm solution is that my brother and I (who are going to pick up the monthly loan payments) will wind up funneling money to my Dad when it's needed--which, good news, means we will get to keep the house (and thus get some financial reimbursement)."

And from a subsequent post:

"As the reverse mortgage was laid out to us (and the agent in question does this on the side, not to make a living), my dad could get a monthly sum based on the value of the house, and that we'd be liable for whatever he got (not the entire loan sum) after he passed and the house was sold. Yes, we were aware the equity loan would be paid off as part of this, and yes, we understand that, in the long term, we'd essentially be giving up the house. I'm not sure what you mean by us making payments; I believe the loan is not due until a 'maturity event' occurs ,,,"

Perhaps I was too concerned, but I still do feel that RMs are like financial time bombs.

As to HELOCs, I believe the expectation was to just refinance the HELOC, but that was before the financial crisis. I do know that Chase has made some policy changes since then. At one point I was told by a Chase banker that his branch was no longer granting any more HELOCs at all.

That was during the time that the "Too big to fail" banks were sitting on their assets and not extending as many individual loans. So that position may or may not have been due to the then current economic climate and desire to retain rather than extend assets.

I'm not sure I follow your question:

"wouldn't refinance, not necessarily because of us, but could be an issue with them, with the loan being in parent's name - would they still be in a position at that point to be able to do that? - but just because they had different rules as to where they could finance to and said we were out of their lending area - sorry "

Were you referring to Adam's situation or your own? Could you be a bit more explicit? Were you told your HELOC wouldn't be refinanced because you weren't in that branch's or bank's lending area?

Adam, sorry - sometimes these posts do go off track, but sometimes the diversions can also be helpful to the original issues or to other posters.
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I didn't get the idea he was seriously considering - or they were - taking out a reverse mortgage, just that they had a talk with someone about them, who I thought was trying to get them to take out one, but that they had pretty much nixed that idea, with the idea that they would just make the payments on the HELOC, but I am glad you brought up the fact that it might be a balloon mortgage; we had one at one time that I - and I don't think my husband either - realized was, which when realized, we didn't have any way of paying it off and not sure they necessarily will either, would depend on what's happened by then, maybe they're expecting everything to be in a place by that point, but if not, we were told that they typically just expect them to be refinanced; I'd be curious to know who it's with, may not be an issue any more depending, but ours was when all this bank buying and selling was going on and ours had been sold and the new bank - well, the old as well but that's a different issue - wouldn't refinance, not necessarily because of us, but could be an issue with them, with the loan being in parent's name - would they still be in a position at that point to be able to do that? - but just because they had different rules as to where they could finance to and said we were out of their lending area - sorry
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Igloo, excellent points, a lot of which I missed. I have been thinking about this and need to do some more - it's more complicated because of the asset issues and I need to reread all the previous posts to bring myself up to speed.

I did want to add something to your comment about the difference between the upset values of the HELOC and the RM. You made some good points. Of particular concern is the rapid acceleration that would occur in obligations, monthly and long term.

This is my understanding:

1, The existing HELOC has an upset limit of $115K. Even if it is fully advanced, the interest is calculated on the $115K, and that's it unless it's with BofA which imposes an annual fee ($35 I believe).

Sometimes the HELOC is a balloon mortgage as well; after 10 years (or other length depending on the loan and lender), the entire balance is due and payable.

There might be some payoff fees if it's paid in full and discharged.

I'm only familiar with HELOCs through a few banks (BofA is one I would never ever deal with again!), so there may be other models and variations.

But essentially, monthly interest payments must be made; on maturity of the HELOC, what remains of the unpaid balance, interest through payoff date and perhaps a payoff charge for recording the discharge would be what's due.

That's it.

2. The RM will payoff the HELOC (there's a $115K advance right there), plus other fees as can be creatively slipped in will be added, to increase that initial principal balance....appraisal, probably various service fees which make no sense, etc.). $115K and counting....

Right at that point you're getting a principal balance that's more than the HELOC, exclusive of any additional advances.

Add the interest rate, not necessarily competitive, and calculated monthly plus recalculated if no payment is made on that interest. Already it's $115 plus fees plus interest on the first month...then more interest for the subsequent months.

As the fees creep up, the available cash for advancement creeps down. Ergo, less money for the parents to draw on when needed.

This is theoretical based on an equity RM. I'm not as familiar with lump sum RMs, and how much would be advanced and bear interest.

But the bottom line is that in the short and long runs, an RM will cost more in fees and interest and leave less for the parents and more to pay off if anyone tries to.

It grows like a notorious blob in that old science fiction movie.

Anyone planning on "inheriting" the home will be stuck paying off an amount in excess of $115K; how much will depend on the interest rate, miscellaneous fees and charges, and how long the parents live.

Segue back to Igloo's comments about needing money if the parents ever need to go to a care facility. That RM money will have been eaten up in part by fees, which are going to continue to accumulate.

There may not be enough, or even any, funds left under the RM for care facilities. And if both parents are out of the house in facilities, I believe that's justification for the RM mortgagee to call the loan, as I believe that living in the home subject to the RM is a prerequisite for good standing of the mortgage.

So, in the long, run an RM might not provide much at all for eventual care, whether it's at home or in a facility.

On another issue, assuming I understand correctly, Adam and his brother would be making the monthly HELOC payments. Adam, I assume you're aware that because this RM isn't on property that either of you own, the interest will not be tax deductible for either of you?

I'll be back later to address some of Igloo's other points and suggestions.

Adam, I'm sure it seems as though Igloo and I are complicating the situation with our comments and suggestions. I'm sure that's true, but we're really trying to point out the pitfalls so they can be seen and addressed now, not down the road when it's either too difficult or too late.
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About stepmom, so things she has said are not an issue now are, correct? She has been balking on paying for things to begin with, correct? She has her own dementia and competency issues, correct? She tends to view her $$$ as hers & hers alone, correct? As she ages all these are going to be more fixated upon by her & it is not going to be pretty. It could well be that she is going to need oversight 24/7 care in a facility before your Parkinson's dad will. What would that do financially for them as they are married. Prenup as others have said probably doesn't matter. What is her family like & attitude towards ever paying for anything on her? IF both of them need care in a facility, there goes all the $$$.
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Also about you & bro getting reimbursed for $ paid for things from the sale of the home eventually. Realize that that totally is an all risk situation. Paying for your parents home to me is like having a 2nd or 3rd home but without any guaranteed of ownership so runs a total risk on exposure. If you do this, you kinda have to be in it for the long haul imho - whether that is 6 mos or 6 years and then through the probate and estate process. If the costs on the house (both the somewhat fixed and the unexpected roof repair) are really not an issue for your pocketbook (and take into consideration you & bro's spouses as they may not be quite happy to have to pay & hear about dad's house costs……); then go for it. But be prepared to fund all this to the end game with whatever agreements needed signed off.

GardenArtist perhaps you could shed some ideas on how to do this??
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