It’s important to understand what happens after someone with a reverse mortgage passes away, and how you can take steps now to make that process easier and less stressful for your family.
At Silverman Law Office, PLLC, we regularly assist families throughout Montana with probate, real estate transfers, trust administration, and estate-related matters. Because reverse mortgages are unique financial tools, they come with specific legal and tax considerations when the borrower passes away. Planning ahead can make a meaningful difference.
What You Need to Know About Reverse Mortgages and Probate
When the borrower on a reverse mortgage passes away, the loan becomes due and payable within a constrained timeline. What happens next depends on whether any legal planning has been done ahead of time.
If the property needs to go through probate (the legal process of transferring property after death), your family may have limited time to act before the lender begins foreclosure proceedings.
We regularly see family members, often adult children, struggle to gain the legal authority to handle the home. Many don’t realize:
- The home cannot be transferred to the heirs or refinanced until probate is completed.
- Even if the property is transferred to an heir, the person who inherited the property must pay off the loan within the limited timeframe.
- Lenders impose strict deadlines, often starting shortly after death.
- Heirs may need to act quickly, even during a time of grief, or risk losing the property or accepting a price that does not reflect the asset’s true worth.
Without a clear plan, this can lead to delays, stress, and potentially even loss of the home.
How You Can Plan Ahead
The good news is that there are several tools we can use to reduce risk and protect your family’s peace of mind.
- Transfer-on-Death (TOD) Deeds
Montana allows TOD deeds, which name a beneficiary to receive the home without going through probate. This simple tool can avoid court involvement, but it doesn’t delay loan repayment. We’ll help you use it correctly as part of a larger plan.
- Title and Ownership Review
Many assume their spouse or children are on the home’s title, but unless their names are listed, they may not have legal authority to act. We’ll review your title and help make changes if needed.
- Probate and Estate Planning
Probate in Montana can take anywhere from a few months to several years, depending on the situation. A TOD deed, will, or trust, depending on your goals, can streamline the process. If you already have a plan, we’ll review so it will work alongside your reverse mortgage.
- Tax Considerations
Reverse mortgage interest isn’t deductible until the loan is repaid. Timing matters, and we can help you explore tax-smart options. Most heirs receive a step-up in basis for capital gains, but gifting or delayed sales can create tax complications. We’ll help you plan around these risks.
Why It Matters
We’ve seen how difficult things become when these issues are left unresolved. Lenders are rarely flexible, and loved ones can be caught off guard, dealing with legal red tape during an already difficult time.
Planning ahead gives your family clarity and control. It helps to handle your home way you intended, not on the lender’s terms.
Need Help?
Whether you’re just beginning to think through these issues or know changes are needed, we’re here to help. We’ll walk you through your options and put protections in place, so your family is prepared.
Call us at 406-449-4829 or visit https://mttaxlaw.com/contact/ to connect with us.
Tony Dalton is an associate attorney at Silverman Law Office.