Reverse Mortgages and Irrevocable Trusts

If you are considering a reverse mortgage or already have one, keep in mind the effect this may have on how you design your estate plan.  In the rare case that a house is already in an irrevocable (non-revocable) trust, the lender will catch this and possibly refuse to approve the reverse mortgage.  More astute lenders will perhaps accept an attorney's opinion that certain language aded to the trust agreement will suffice to qualify the reverse mortgage.

But what if you take out a reverse mortgage while you and your spouse have the more commonly encountered type of trust, a joint revocable trust?  What if one spouse dies, and the trust has tax planning provisions creating one or more irrevocable trusts upon that spouse's death, funded with all or part of the home subject to the reverse mortgage?  Could the surviving spouse then be faced with the stark choice of having to either pay off the reverse mortgage, or move?

Even with the generous new estate tax law, tax planning formulas and irrevocable trusts remain in use because it is not certain the law will be permanent, and because these trusts have value as asset protection devices.

If you have a reverse mortgage, the simplest course may be to avoid including any irrevocable subtrusts under your revocable trust agreement.  If there is a strong need for advanced planning with subtrusts, then it is possible that certain language can be included making the irrevocable trust acceptable to the lender.  If one spouse has already died, then perhaps this language can still be added if you included "Trust Protector" provisions in your trust, for situations like this.  Be sure to consult an estate planning attorney regularly.  Get started at

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