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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4360  
Subject: Protecting/Conserving a Property Structure Date: 4/17/2008 2:59 PM
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Protecting Property Structure

Hi Gang,
OK... I think I have a duesy here, and would love any ideas & feedback offered.

I have an 82 y.o. client who's come to me to refinance her existing reverse mortgage (way overdue... an old FHA variable at 250 bips higher than current FRMs...) Her Edward Jones rep sent her to me because she's got over 80% of her net worth tied up in her real estate equity, and he was worried about her cashflow management.

She's never been married, no kids, no family she wants to name as heirs/beneficiaries. She's got a will, but keeps her distribution preferences private (stay with me... there's a reason for all this background.)

She's sharp as a tack, and stubborn as a mule... hardly even any gray on her head (and zero vanity.) She's a self-pronounced (and frequently pronounced) 'democratic liberal' yet she is proud of the fact that she's been described in a book-jacket blurb as "not a conservative, but a CONSERVOR." (Stay with me... there's a reason for all this background.)

Her home is a classic 2-story 1906 Craftsman, built like a tank (the floors don't even creek when *I* walk across them,) and in perfect character sitting on a rise over the beach in an upper-middle-class neighborhood in West Seattle. The 8-foot leaded-glass windows have a breathtaking view across the bay with a direct view of the Seattle downtown skyline from Ballard down to the shipping yards. It is an old... but truly gorgeous home.

So HERE is the crux of the issue;
A) She wants to legally "Conserve" the home for as long as it can structurally stand (and as it is built, that will be for long, long beyond her passing... and she is very aware of this,)
B) She wants to get this sorted out & guaranteed now... the earlier the better,
C) She does NOT want to leave it up to anybody's decisions after her passing,
D) She wants to not simply "give it away" but rather to obtain some compensatory benefits while she survives.

I thought of her possibility to sell conditional on the granting of life estate, but that would trigger the DOS clause in her reverse mortgage (and wouldn't conserve the property structure.)

I thought of the possibility of a CRT... but that would dissolve & distribute at her passing, which would drop the ongoing protection of her home "in state" as she desires.

Then I thought of using a standard land trust whereby the Trustee is instructed to keep the home in state as long as it meets certain defined safety & structural standards. This is fully acceptable by the reverse lenders for estate planning purposes, so no danger of triggering the DOS claus.

She could then select a younger co-beneficiary to the trust for asset-succession purposes. The reverse still comes due within 12 months of her vacating, regardless, so any co-ben that wants to keep the trust corpus intact would have to refinance at that point anyway. At their mutual co-beneficiary agreement, she could receive financial benefits however they design them from this co-beneficiary... perhaps cashflow supplementation while she remains in the home... perhaps supplemental support should she require a nursing home... and ultimately some payout to her estate at her ultimate passing. The trust would then survive her, since her co-ben would remain in place per the agreements. Further, the trustee could assure that the property be historically maintained as she desires.

I'm unsure what the statutory limit is on WA state trusts... but it would almost certainly be longer than the likely structural lifetime remaining in the home.

Of course... IANAL, so this would ultimately go to the gray suits should the idea have merit.

Feedback? Additional creative solutions?

Thanks all!
Dave Donhoff
Strategic Equity & Leverage Planner
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