How does a reverse mortgage affect government benefits and overall financial planning?
Reverse Mortgage: Page 8
Because reverse mortgages are considered loan advances and not income, the IRS doesn't consider them taxable income, so reverse mortgage payments shouldn't affect recipients' Social Security or Medicare benefits.
Recipients' home equity -- and the amount of home equity they can pass to their heirs -- is reduced by the amount of the reverse mortgage. Their estate will get whatever equity is left over. Their children or other heirs aren't required to sell the house to pay off the reverse mortgage -- they can also pay back the loan with a traditional mortgage.
If your parents or other family members have set up a living trust as part of their estate planning and that trust includes their home, they can generally still qualify for a reverse mortgage, but they should consult with their estate planning advisor.