When the Nest Egg Cracks: Senior & Family Caregiver Financial Options

Most of us shiver at the thought of retiring without enough money to see us through, not just the everyday needs but also emergencies.

Financial issues of our senior loved ones (and our own) cause many a sleepless night for family caregivers.

How much is enough to meet their needs? What are the potential costs that might push a nest egg out of the tree?

These are all considerations as family caregivers think about their own future but also for their senior loved ones who may be struggling making their nest egg meet their current needs.

Are there options for them now to afford healthcare and living costs as they age in place?

What can we do to help figure it out?

Cracking Retirement Nest Eggs

Our senior loved ones have already planned for their retirement and probably have a steady income at this point in their life. The concern comes when one, or both, of two scenarios comes into play:

  • their expenses, planned and unplanned, overwhelm their resources, or
  • something happens to devalue the nest egg they have built.

Many seniors are living longer than the years they planned their money to last. That’s a good thing for the family members who love them but not always a good thing for the finances.

On the other side of the equation, we have seen how financial markets and interest rates can devastate savings and business decisions can do the same to pensions.

The cost of healthcare has risen so sharply that even a well person can have difficulty keeping pace with the costs. Add a few chronic conditions, medical procedures and several expensive medications and the nest egg starts to teeter out of the tree limb.

There are some options to meet expenses for our seniors to take advantage of even at this stage of their lives or to offer protection of assets for the family after the death of a senior. This could be important if the family caregiver incurs financial expenses during caregiving.

Financial Options for Repairing Cracks

Financial situations and issues are individual so we won’t tell you which is best for your senior loved ones, but we have some options to consider. You may want to consult financial or legal experts with questions or advice in determining what is best for your senior (remember, we are informing but not providing legal advice).

Caregiver Loan

Relatively new on the scene it is a peer-to-peer loan between family members and seniors. Family members, including children and grandchildren, can collectively fund a flexible line of credit with low interest rates to seniors.

Family members become the bank. No fees upfront but adequate interest rate to cover the interest family would have had on the money they are lending.

Even though or perhaps because family is involved, there could be problems and disagreements. It is best to have legal help or from a bank that helps structure the loan for you so that all the particulars are clearly understood by all. Experts recommend that the value of the amount lent does not exceed 65% of a senior’s home value as most of these arrangements are similar to reverse mortgages.

Life Estate

A life estate is a term about which we are hearing more and more lately as seniors look for a way to get more control over what happens to the family home after their death and shelter their children from the probate process.

A life estate is a joint ownership of real estate, such as a house. A senior can sell or give ownership to their children of the home while the senior remains living there. The senior is the life tenant and the child is the remainderman. Under a life estate, the home does not go through probate because the home’s title is no longer in the senior’s name.

During their lifetime the senior continues to be responsible for the mortgage and upkeep of the residence. If the child pays for these, they can be reimbursed from the senior’s estate.

A life estate can be sold or given to more than one child if that is a preference. It is considered a gift and could affect medical assistance for long term care of the senior.

There are family benefits and is seen as encouraging families to live together to better care for their senior loved one, but there are potential drawbacks to a life estate. However, the main benefit of a life estate is minimizing the effect of inheritance tax or other taxes when transfer the real estate asset in probate.

It makes it difficult to mortgage or sell the property if needed. The child or children and the senior must all agree to any change in title, sale or borrowing against the home. If the child sells the property after the senior’s death, they must pay capital gains tax. The senior also takes on the possible legal problems of the child which could impact ownership of the home including lawsuits, bankruptcy or back taxes. If the child dies before the senior, the estate of the child would have to proceed through probate. It the child gets divorced, the spouse would have a claim against the house.

It is very important to seek advice from an elder law attorney, estate lawyer or tax expert before proceeding with a life estate so that every possibility is understood and because each state has different laws governing a life estate.

Transfer of Death Deed

When the title to real estate has a filed Transfer of Death Deed (TODD) it will also usually avoid probate, since the title is transferred upon death but remains in the senior’s name up until their death.

This is helpful to keep the property in the family with the person of the senior’s choosing, but this doesn’t offer the senior any financial gain during their lifetime that would be helpful during aging.

Reverse Mortgages / Home Equity Conversion Mortgage

Many seniors have decided to get reverse mortgages to help pay for current expenses and others may be considering it.

A reverse mortgage was originally issued to help seniors access the equity in their home in order to help prevent economic hardship.

If the senior has a low mortgage balance or owns their home free and clear, they can get a lump sum payment, monthly payment or line of credit. The lending company pays the senior homeowner and recoups the investment at the time of death or if the house is sold. Significant fees are often associated with these mortgages.

A reverse mortgage can help low income and low savings seniors who own their home be able to live comfortably now. However, it has many disadvantages, including a high cost (as much as 5% of the value of the home) that should be carefully considered. It might be more beneficial to have a line of credit or monthly payment so that a lump sum isn’t spent in a less than advantageous way including scams.

Home Equity Loan

This is a loan that allows the owner (in this case senior) to use the equity in their home for cash. The money can be used for home repairs, medical costs or other debt. The amount of equity is derived from the difference in the appraised value of the home and what is owed in mortgage.

The home is used as collateral so that if your senior defaults on the equity loan, the bank can take the home. It has a fixed interest rate, a set amount of time money can be used, and a repayment period.

A home equity loan can be done in a lump sum or as a line of credit.

Leverage Life Insurance

Some seniors are choosing to take a loan against the value of their life insurance to use for their current expenses. The life insurance policy becomes collateral for a loan.

The death benefits are then used to pay off the loan after your senior dies. If there is any money left over, it will go to the beneficiary.

Housing Rehabilitation Grants and Low Interest Loans

Money to be used to repairs or correct health or safety hazards in the senior’s home or to make accessibility modifications so that seniors can stay in their home longer.

Home Energy Assistance Program (HEAP)

A federal program that offers cash grants to help pay home heating expenses.

Both the Housing Rehabilitation and Home Energy Assistance programs are typically administered through your state’s Agency on Aging. Your senior should contact them to learn more or apply for funds.

Caution is The Parent of Safety

As with anything that involves money, you and your senior loved one should be cautious before signing on the dotted line. Loans of any type are not always desired but can be valuable tools if needed.

These are a few ways to help seniors and their caregivers face economic challenges. However, there are many other ways to help fund our senior loved ones aging in place, including following a budget and participating in all government programs for which they are eligible, including SNAP, Medicare, VA benefits, housing and other assistance.

Sometimes our senior’s best idea of what funds were needed to feather their nest egg will provide adequate amounts for their care but for many their retirement planning just won’t cut it. Being aware of the financial options available and finding the right fit for your senior, will help them live comfortably.

It will help both of you sleep better.