Finance

Can you explain the benefits and dangers of reverse mortgages?

There are pluses and minuses to a reverse mortgage, which allows virtually anyone over 62 to borrow money against the value of his home without having to pay back the loan as long as he lives there. "The money doesn't have to be paid back until you either sell the house or until after your death," says Russ Barschi, a certified senior advisor and founder of Seminars for the Advancement of Financial Education (SAFE). "For many people, the value of the home is the bulk of their assets, if not all of it. A reverse mortgage taps into that value, without [the risk of] your losing your home."

While Barschi says that "for the right people, reverse mortgages are a wonderful thing," he doesn't recommend them if you have other assets. "The payment has to be recouped one way or another when you die. The mortgage would be due." Given the necessity of that large payment, says Barschi, "people with or without children tend to look at this differently. People with children typically have a vested interest in wanting to pass assets on to their kids. If you don't have kids, you don't care as much." For those with children, Barschi believes any mortgage or retirement funding is a family matter. "Discussing your affairs with your kids is very important," he says. "They might say, ‘Hey, we'll give you some money or fund your retirement. Then we'll get the house free and clear, without the obligation of having to pay back the reverse mortgage.'"

With the start of the New Year, I'm taking over my folks' recordkeeping. Are there tips you can offer to help me zone in on what items I should especially track for them?

There definitely are areas you shouldn't neglect. "Confirm that Social Security deposits are being made, keep track of minimum required distribution from IRAs, make sure bills don't get lost and reconcile bank statements," says Barry Krostich, CPA, a partner at Krostich & Krostich, LLP, in Roslyn Heights, NY. But what comes to mind most, he says, is medical expenses.

"Tax-wise, you want to keep track if your parents would benefit from a medical deduction." The rule, according to Krostich: "Medical is deductible if it exceeds 7.5 percent of their adjusted gross income, which may be the case if their income is low or average and they have a lot of medical expenses."

Beyond that, keep an eye out for medical-budget details. For instance, if they see an out-of-network doctor, Krostich reminds that it's important to monitor payments. "Your parents pay the doctor and then they have to get reimbursed from Medicare or any other supplemental insurance," he notes. "Make sure you get back the money on that."

My mother and I currently live in different states. I want her to move in with me so I can better offer her care. Are there dangers of her losing state- or federal-provided benefits as a result of her moving from one state to another?

"Social Security will not be affected by a move," says Peter Strauss, distinguished adjunct professor of law at the New York Law School and a member of the Caring Today advisory board. "You should, however, notify Social Security of the change of address. If your mother has direct deposit of her benefit check and wants to change her depository bank, she needs to go to the new bank and complete the necessary forms," adds Strauss, who is also head of the personal planning department at the firm of Epstein Becker & Green.

Medicare also requires some paperwork. "Your mother's coverage should not be affected by a move," Strauss says, "unless she is in a ‘Medicare Advantage' plan—an HMO—in which case she needs to check whether her plan will cover her in the new state. Most will not, so she will need to enroll in a new one. At that point, she'll be [removed] from the old plan automatically. She can also go back to regular Medicare," adds Strauss, and "if so, she should consider a Medicare Supplement policy."

It's also vital to remember that "there could be significant differences in the Medicaid eligibility rules and benefits in her new state. She should consult a qualified elder-law attorney about this." More information can be obtained from each state's department of aging website.

My doctor told me to get exercise to relieve caregiver-related anxiety and to avoid stress-related illnesses, so I joined a gym. Can I deduct the gym fees off my taxes as a medical expense?

Basic accounting law dictates that "to be deductible, medical expenses generally must be tied to the diagnosis, cure, mitigation, treatment or prevention of disease. Stress certainly can fall within those parameters," says David Goodman, president of Companion Connections Senior Care, based in New York City. Goodman advises that it's "best to try to get a prescription from a doctor saying the gym membership is related to the stress, and that the doctor is recommending it." But even with this in hand, he says, "it's best to consult with your personal tax advisor. Obviously, anything you claim can be challenged, though as long as it falls within those parameters, it's not likely it will be."