When the tax-free equity release is used to fund life insurance products, a reverse mortgage is a creative and effective way to secure the future for heirs. It gives homeowners, particularly those with substantial wealth built up in their homes, the comfort of having more control over their estate and assuring the legacy they leave retains its value by:

• Lowering the total estate value subject to taxes

• Providing life insurance proceeds for the homeowner’s heirs to pay estate taxes

How does it work?

The full value of a home owned outright is subject to estate tax, but a reverse mortgage against the property reduces its value–thus lowering any applicable estate tax. We recommend you consult your estate tax specialist.

A reverse mortgage is a lien against the property that must be repaid when the borrower permanently leaves the property. At death, the full value of the property would not be included in the estate valuation for tax purposes. The accumulated debt of the reverse mortgage would effectively reduce the property value and may lower any applicable estate taxation.

In addition, accrued interest in the reverse mortgage may be available as a tax deduction upon repayment of the loan. Consult your tax advisor.

If the senior chooses to purchase insurance without using the equity release of a reverse mortgage, the buyer is most likely using post-tax dollars or income to pay these premiums.

However, if the senior uses a reverse mortgage to fund the life insurance product purchase, tax-free dollars are put to work and the income stream is unaffected.