Very interesting.
Probably not the best place to ask this question, but re prop 5, I have a friend whose grandparents are getting along in age and since none of their children are interested in their house, have decided to reverse mortgage it. The language in this article about passing on debt to beneficiaries is disturbing - how can this sort of thing happen?
I’d rather not see my friend or his parents end up in a debt trap because of the grandparents fiscal folly.
A reverse mortgage is still a mortgage. The lender is making payments to the owner which causes the amount owed to increase over time. At the owner's death, the heirs are entitled to any equity in the property, but it's probably in the fine print that the property must be sold to pay off the debt unless the heirs do so.
This analysis sounds like nonsense to me.
If the seniors have equity in the home, they should be free to use that equity in any manner they wish.
The analysis makes it sound as if the reverse mortgage will result in negative equity in the home and that the heirs will have to pay off this debt. Somehow, I doubt that this is true.
What is perhaps true, and completely fair to every party involved, is that the debt may have to be paid off from the seniors' estate. This might involve assets beyond the property which has the reverse mortgage on it, but it would still be property belonging to the seniors and they should be able to do with it anything they wish.
There should be no obligation that seniors should have to live an unnecessarily frugal life or continue living in a home which doesn't suit them simply in order to preserve an inheritance for their offspring.
I've helped my kids get a financial start in life but I still intend to get a bumper sticker saying, "I'm spending my kids' inheritance." When the time comes, they can do the same.