The Reverse Mortgage Probate Problem, and Liquidity
Reverse mortgages have become more popular in recent years. The concept, in a nutshell, is this:
-you (62 years old or older) borrow against the equity in your home
-instead of paying down the mortgage over time, your mortgage grows. But it doesn't have to be paid back until the house is sold or until you die
I've encountered this situation in the probate context a few times recently: mom dies, reverse mortgage is now due, and guess what? The house can't be sold because of the bad real estate market.
The bigger problem, of course, is one of estate liquidity. When a person dies, there are bills that have to be paid. Some of those bills are small, and some of them can be avoided. But certain bills can't be avoided, and are going to cause a real headache for your survivors if you've left them with no liquid assets. There are lots of older people, even those who aren't particularly sophisticated, who take action to prevent their heirs from being stuck with hard-to-pay bills. That's why there's funeral insurance. But you also have to think about the extent to which your assets are in illiquid forms like real estate.
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