How does Loan advances from a HECM Reverse Mortgage Affect a Borrowers Eligibility for Medicaid / SSI
Borrowers 62 and older who are looking to apply for a Reverse Mortgage should consider the implications this could have on their eligibility for Medicaid or Supplemental Security Income (SSI).
Please, be advised that we do not offer tax, legal, financial or Social Security or Medicaid counsel. We strongly recommend you consult with a competent tax, legal, financial or Social Security or Medicaid Counsel or Representative. The following is for informational purposes only and is subject to errors and/or omissions and to changes without prior notice.
An important and common factor that Medicaid and SSI share is asset level limits, depending on the Advance plan you select, the loan proceeds could disrupt eligibility.
Borrowers have the option of receiving the Advance as: 1) a line of credit, 2) a lump sum, 3) monthly advances, or any combination of these three options.
So, for means-tested benefits that are available based on income and assets, reverse mortgage loan advances that are held in the borrower?s bank account from one month to another may be counted as assets, and thus may disrupt eligibility.
Borrowers who choose 1) the lump sum option or 2) a high disbursement at closing or 3) a high monthly advance or 4) a high withdrawal from a CreditLine for payment, have an especially high risk of losing eligibility for means-tested assistance. If the proceeds from their loan are maintained in the bank account from one month to another, this money is viewed as an asset.
Medicaid is another needs-based program that considers a senior?s income and assets, although limits vary state by state. In 2011, typical asset limits for Medicaid benefits were $2,000 for an individual and $3,000 for a couple, although some states? limits are very generous, and other states have o limits at all.
Because of these limits, a Medicaid-eligible senior who receives 1) the lump sum option or 2) a high disbursement at closing or 3) a high monthly advance or 4) a high withdrawal from a CreditLine for payment from reverse mortgage proceeds will very likely lose eligibility, unless that money is spent within the month received*.
Medicaid recipients must account for all money that goes in and out of their bank accounts.
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?SSI? Supplemental Security Income
SSI, a federal program for the elderly or disabled, requires its participants to have an income beneath the federal poverty level, and also considers assets. In 2011, the program had a universal asset limit of $2,000 for individuals and $3,000 for couples, so reverse mortgage borrowers who receives 1) the lump sum option or 2) a high disbursement at closing or 3) a high monthly advance or 4) a high withdrawal from a CreditLine for payment from reverse mortgage proceeds will very likely lose eligibility, unless that money is spent within the month received *.
And, if borrowers received SSI benefits at a time when their asset levels were above the limit, it?s possible that they will be forced to return that money through reductions to their Social Security checks.
- Reverse mortgage borrowers should look into their state?s requirements and Consult with their Medicaid/ SSI Representatives and/or legal and/or tax counsel to determine how it could affect their eligibility before deciding which kind of Advance they will choose.
How Does The IRS Treat Loan Advances From a Reverse Mortgage
"A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original interest discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on home equity debt discussed in Publication 936, Home Mortgage Interest Deduction."