One of the main ways a Reverse Mortgage is used to create family legacy is through a living inheritance, which the recipient often uses for a down payment. Parents can pass along their wealth now, when their kids need it most and without impacting their cashflow in retirement.
Living Inheritance – Gifted Down Payment
A living inheritance is a great way to grow generational wealth. When the adult children use the funds to enter the housing market, the extended family now has two properties appreciating in the Lower Mainland instead of one.
Traditionally, clients who want to help their children while still alive have requested a withdrawal through their financial planner. This assumes that those clients have enough saved to provide the gift to their children and still maintain their standard of living for the rest of their retirement years. And obviously, for clients who hold the majority of their wealth in their property, this isn’t an option.
Even for those clients who do have sufficient investments to facilitate a gift of that size, using a reverse mortgage for the living inheritance means parents can gift the funds with:
- no impact to their monthly cashflow
- no capital gains or income tax trigger
- no depreciation of investments
- no pension claw back
Not only are the parents investments left untouched and continuing to grow, the family now has two properties growing in value.
A note about living inheritance… the title insurers have been requesting additional documentation on living inheritance files. The title insurers may ask for a copy of the will and confirmation of how many children are in the family.
Recent Client Story – Gifted Down Payment
Charles (80) and Donna (74) have a $2.8M clear title home in Vancouver. They want to help their grandchildren purchase their first home. They spoke to their financial planner about withdrawing the money from their investments but, given the tax implications, she referred them to her mortgage broker instead.
CHIP approved loan amount: $1,148,500
They advanced $600,000 and gifted their granddaughters $300,000 each to use as a down payment. They were able to help their grandkids purchase a home without affecting their own lifestyle, without incurring an additional tax burden and their investments are still continuing to grow in value.
Living Inheritance PDF
In another example this week, we have a great pdf (HEB_WealthCaseStudy_Mike_FINAL and Reverse Mortgage Financial Illustration Mike) from our investment division that compares gifting funds from investments vs gifting funds through a reverse mortgage. This illustration shows that when the reverse mortgage is are used, adequate cashflow is maintained through retirement whereas gifting from investments leads to a shortfall later in retirement. This can includes a financial projection that shows net equity in the home is maintained throughout retirement as well.
Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.
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