A reverse mortgage affects estate planning by placing an FHA-insured lien that grows, then by handing heirs a keep-or-sell choice under 24 CFR 206.125. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. The process is not “write a will, then originate.” It is leftover-cash math first, occupancy second, then honest talk about what children inherit: a house subject to a balance, not a coupon-free gift.
Here’s a case that shows this: Dune, 80, occupies a house in Redlands, California, and an advisor said a HECM would “protect the estate.” Accrual of interest and 0.50% annual MIP of outstanding balance (Mortgagee Letter 2017-12) shrinks leftover equity while Dune lives there. See effect on the estate for leftover-equity math. Stay here for the planning process: what to decide before counseling.
A HECM remains FHA-insured. Estate planning is not a public inheritance program.
What should be decided before anyone books HUD counseling?
Whether leftover cash is worth 2.00% initial MIP of claim amount. Whether occupancy is true now. Whether the honest heir plan is keep, sell, or deferral for an Eligible Non-Borrowing Spouse. Dune’s leftover cash still sits in the mid-30s to low-50s percent of appraised value, depending on age and expected rate. I will not quote a live cell. Run the Redlands worksheet. Do not interpolate HUD rows.
Counseling still costs $125–$175. The HUD certificate lasts 180 days. California Civil Code 1923.2(k) still holds a complete application for seven days after counseling. Do not burn 180 days on a “protect the kids” slogan.
If residual income requires a LESA, that set-aside is origination-only and can consume the useful line. Jay confirmed it cannot be added later. A LESA is not an estate-planning gift to children.
How do a will, a trust, and Prop 19 sit in this process without replacing HUD?
A will names who inherits equity after the lien. A revocable living trust can speed successor-trustee authority. California Proposition 19 occupancy rules can change the child’s assessment after title moves. None of those tools reduces the HECM payoff. 2026 files still use the $1,249,125 cap in Mortgagee Letter 2025-22. Origination is still capped at $6,000 under 24 CFR 206.31. A trust does not discount MIP.
See estate planning for accrual while you live there. This page is the sequence of conversations, not the tax-basis lecture. I am not your estate attorney. Bring one if title is the project.
A second geography: a 76-year-old in Surprise, Arizona, whose children live in three states. Same 24 CFR 206.125 keep-or-sell split. No seven-day California hold. Same need to name who will talk to the servicer.
An adjustable HECM still accrues at 1-month CMT plus lender margin while Dune occupies. Expected rate still rounds to 0.125% under 24 CFR 206.3. On living HECM refinances I still use about 30 days as the average close I describe — not as an estate deadline. Estate documents can be drafted in parallel. They do not replace occupancy.
What should heirs be told, in writing, before origination?
That keeping the Redlands house later means paying the outstanding balance under 24 CFR 206.125(a)(2)(i), not 95% of a family appraisal. That unused line of credit is not cash in a drawer they inherit. That non-recourse under 24 CFR 206.27(b)(8) limits a personal deficiency on an allowed sale. That silence after death is how 24 CFR 206.125(d) diligence starts foreclosure.
Proprietary notes Jay closes — HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha Secure Equity — follow those contracts for heirs. They are not FHA-insured. Read the note. Do not import 24 CFR 206.125 onto a private file without reading it.
When should a successor trustee sit in HUD counseling, and when is that theater?
A successor trustee who will have to call the servicer should hear the 24 CFR 206.125 keep-versus-sell split before Dune originates, not after a funeral. Counseling at $125–$175 is for the borrower. It is not a substitute for an estate attorney. A living-trust certification that title will accept is origination work. Prop 19, if it applies to a later transfer, is tax work. Neither is HUD.
If Dune’s honest plan is “the kids will figure it out,” the process failed before anyone booked a counselor. Write the keep price as outstanding balance under 24 CFR 206.125(a)(2)(i). Write the sale path as the Commissioner-set amount not exceeding 95 percent of value under 24 CFR 206.125(a)(2)(ii). Write that unused line is not inherited cash. Then decide whether leftover cash after 2.00% of claim amount is worth origination. If it is not, skip the HECM. Estate documents drafted in parallel do not rescue a thin leftover-cash story.
Who should not originate a HECM as an inheritance strategy?
This path does not help a household whose only goal is a free house for the next generation. Occupancy is still 24 CFR 206.39. I work with multiple lenders. I will originate when leftover cash is for Dune’s life and the heir story is honest. I will turn away a “protect the kids” file whose leftover line cannot justify MIP.
If leftover cash after 2.00% of claim amount is a token, skip origination. Estate paper cannot invent proceeds. It can only name who faces 24 CFR 206.125 later.
Write the keep price, the sale-path ceiling, and the unused-line warning in one letter Dune signs with the successor trustee. Counseling at $125–$175 will not do that drafting. An estate attorney will. I originate when that letter exists. I do not originate an inheritance slogan.