HELOC or secured loan to an elderly relative?
November 28, 2020 12:26 PM   Subscribe

My elderly relative requires expensive in-home care, owns her house, and I'm trying to figure out the best way to tap her home equity.

She's got five-figure eldercare expenses each month. She owns her home outright, so is there any downside to using a HELOC to cover the expenses? (Other than running out of credit and having to pay interest on top of the eldercare expenses should she live that long.) Can the family chip in for the HELOC interest payments? Will her estate sell the house and repay the HELOC?

Another option: Can the rest of the family make secured loans to her against the house, with the expectation that her estate will repay the loans eventually? It looks the family would have to charge a minimum interest rate and file paperwork to avoid tax problems, so this might be more complicated and no better than a HELOC, right?

The third option is we chip cash in the form of gifts, but it won't totally cover her expenses, and it might lead to bad feelings if some people contribute more than others.

The fourth option is that one of us buys the house outright and gives her the cash, but then we have a second mortgage, and again it sounds like a homemade HELOC.

The family has looked at reverse mortgages but got squinked out. I don't know if they've looked at HELOCs. I'm trying to avoid the family freaking out and fighting and going broke trying to help when there's home equity sitting right there. Once COVID has passed we'll have more options for assisted living, but we need to keep the status quo for now. Help me sell them on a good idea that makes everyone happy!
posted by RobotVoodooPower to Work & Money (8 answers total)
 
There is really not much legal difference between a HELOC and a personal loan from a family member secured by a mortgage on the home. The advantages of personal loans - no bank approval needed, repayment terms can be more flexible, and if the lenders are the ones who ultimately inherit the home, there can be a forgiveness provision that will simplify inheritance significantly. Consultation with a elder law attorney is recommended.
posted by yclipse at 12:40 PM on November 28, 2020


If she could eventually require care that extends beyond the capabilities of her home care and can’t pay cash long-term, most public options in the US will require that she sell down assets to qualify. This could make personal loans trickier to manage than a HELOC. In this case, I’d get a HELOC and use some of the HELOC cash to also pay the interest. This leaves none of you personally exposed to bad debt or tax issues. It also makes you mother’s property unambiguous in case she has to sell to qualify for subsidized care.
posted by quince at 1:35 PM on November 28, 2020 [1 favorite]


If you could access an elder-care social worker or even have a session with an elder care attorney with your relative present, along with her other helpful family members, you would get a much more comprehensive understanding of health care expenses and how best to strategize. These can escalate unexpectedly and continue long after the value of her home has been spent, and it's best to have some understanding of the landscape before the ground is pulled from under her. There may be some state-specific regulations that suggest that the best advice would be from someone in her state.

If she requires nursing home care in the future, for example, there is a lot of difference in what health insurance pays, and for how long. The different rules can be a thicket requiring insider expertise. Medicare pays for a certain period, I believe 20 days, directly after discharge from a hospital, and only if there is rehab involved. After that it's up to the patient to pay. Many will not keep people after their assets are exhausted, leaving you to find a facility where Medicaid is accepted. My aunt was recently in such a nursing home and several residents were forced to leave because the home did not accept what Medicaid pays. Your relative is fortunate to have such a caring family assist her with what must be a huge worry!
posted by citygirl at 2:10 PM on November 28, 2020 [2 favorites]


I would consult a lawyer and/or accountant experienced in elder law so that she is eligible for assistance sooner rather than later without too much bureaucracy.

Every place in the US is covered by an Area Agency on Aging, good place to start.
posted by theora55 at 2:25 PM on November 28, 2020


Look into the Pace Program in her state. (Pace Stands for Program for All-Inclusive Care for the Elderly.) As I understand it, it's trying to address these very questions since it's now understood to be both healthier and more economical for seniors to remain in their homes for as long as possible. According to the main Pace website page:
PACE is a Medicare and Medicaid program to help people get care outside of a nursing home. It’s for people who are 55 or older, are certified by the state to need nursing home-level care, and can live safely in the community with the help from PACE.
If her state is one of those that doesn't provide PACE, or if PACE proves unworkable for her, search for "senior home care options" (and similar phrasing). In a brief Google, I came up with this page on Paying for Senior Care, which discusses, among other things, the pros and cons of HELOCs and reverse mortgages.
posted by Violet Blue at 2:39 PM on November 28, 2020 [2 favorites]


Can you say more about what squinked the family about reverse mortgages? They have a semi-undeserved bad reputation, but they were designed for exactly this purpose, and do come with some important protections for the senior. The main advantage over other options is that you can tap equity for expenses without incurring an additional loan payment.

Definitely not something anyone should get into without researching and being comfortable, but it can be a good option and there are good, reputable lenders out there.
posted by tinymojo at 6:26 PM on November 28, 2020


Oh, also - seconding the suggestion that you consult with a good elder care attorney. Medicare etc is so complicated, it’s easy to put a foot wrong with asset planning and hard to recover once you have. A few hours of good expert advice will be money very well spent.
posted by tinymojo at 6:30 PM on November 28, 2020


Yes, definitely, definitely talk to an elder law attorney about this. Most will do a free initial consultation where they can give you a sense of how much it will cost to hire them, as well as a brief intro to the kinds of issues involved. You can do free consultations with multiple lawyers before you decide who to hire.

Do not just assume you can’t afford a lawyer and try to DIY everything — you can easily end up in a situation where you cost yourself far more money than the lawyer would have cost.
posted by snowmentality at 10:55 AM on November 29, 2020


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