Tax hit/elder situation

[katieb4tom]

Does anyone have any guidance for the following scenario?
MIL is considering signing over her brokerage account to us, entire life savings. The total is under $200k. The reasons to do this are to qualify for Medicaid (if she can outlast the look back period) and save the tax implications on an irrevocable trust. We would write her a check each month for living expenses.

Are there any other options we should consider? She qualifies for most subsistence programs based on income.

What should we consider in increasing our perceived net worth?

Any other thoughts?

Thanks!

[awkwardpenguin]

Have you talked to an elder care attorney? How likely do you think she is to need LTC in the next five years? There are planning mechanisms, but the only way around the five year look back if she needs Medicaid in the next five years is to give all the money back to her or wait out the period of ineligibility.

Writing her a check for living expenses is income for Medicaid purposes, and a gift for gift tax purposes. In addition, the whole transfer of her assets to you would be a gift as well. I'd definitely look into the implications of this further, as a lot is written about the potential Medicaid recipient GIVING gifts but very little about them receiving gifts.

There are other options (turning the cash into home equity, an irrevocable trust, life estates, etc.) but they are state-specific and beyond the scope of a message board. A lot depends on how aggressive the state is with estate recovery.

I'd get clear on what the goal is. With that asset level, it seems like "live off her assets and then enter spend down" is a reasonable plan. If the goal is to preserve her savings and she's unlikely to need LTC soon, then a transfer may make sense. It also depends quite a bit on her living expenses and how much money she needs to draw from savings.

[gt7301b]

There is a look back period for gifted assets. (5 years in most states)

www.medicaidplanningassistance.org/medicaid-look-back-period/

[puppylove64]

This doesn’t sound like a good idea. There are gift tax laws and Medicaid looks back several years and it is considered Medicaid fraud. Have you spoke to an attorney?

[katieb4tom]

I have spoken with an attorney. My initial thought was the irrevocable trust, but he advised against that due to her age, overall health, tax hit upon death, and cost of set-up. He advised she gift it to us, but I am unsure how that may impact us.

I was just curious if others had dealt with similar and what the experiences were. I was interested in crowd sourcing perspectives before taking any next steps, that’s all.

[gt7301b]

I would make sure that your attorney is well versed in elder law.

To answer your specific question. You would not be liable for any taxes, in theory she is if the gift is over $15,000, but it is well below the lifetime limit. So in theory, she (or whoever does here taxes) can file a gift tax form when filing returns.

www.nerdwallet.com/article/taxes/gift-tax-rate

[minzy]

There’s a time penalty if there was gifting in the look back window, state dependent. You may want to play with a few hypotheticals. It may not make sense to gift the money at all now, or it may not make sense to apply for Medicaid right when she needs it because of the look back penalty, depending upon when the gift was given.

www.agingcare.com/articles/amp/166116

We did at least consider this with two older family members - the one was mentally ill and had not worked but had a settlement from when she was hit by a vehicle - she spent some of that down on prepaid funeral expenses, but I don’t think any was otherwise given away and there was certainly no inheritance since her care was paid for by Medicaid. The other had long term care insurance for several years, and only ate into her actual estate towards the end; one family member took out a loan from the person (essentially against her future inheritance), but that was a bit of a gamble that I was not super jazzed about. The original person passed away well before depleting her assets so never approached needing Medicaid. The loan amount wound up being right about what the loanee was going to get otherwise, not ultimately impacting the other beneficiaries.

[niq]

* How old is MIL?
* What's her health situation?
* What's her portfolio - if she sells assets to spend down does she have a lot of capital gains income, or is it mostly bonds etc with small gains?
* What's the housing situation? Does she live on her own? Are there relatives she can move in with if she reaches the point she can't be on her own?
* Is they a social worker connected with her PCP's practice? If not can you get a referral?

Medicaid really only covers *nursing home* care, not independent or assisted living, you have to be in pretty poor health to qualify.

Without more context, I think a slow spend down of assets on quality of life - one time durable home goods, paying for regular cleaning, private pay home aide, setting a transportation budget, etc. - is pretty reasonable. Between social programs and her own money you can cobble together something like independent living for a lot less than it usually costs.

She's screwed if she needs 8 years of assisted living but she was screwed either way on that score.

[niq]

... does anybody know what happened to katieb4tom ?

It sounds like you might be in a situation where Adult Family Care might be the best option when the time comes. Your mom (and/or some other responsible financial party) signs a contract agreeing to pay the private pay rate for a certain number of years, after which Medicaid takes over the bills. This gives you a bit more choice of locations and some continuity of care as she goes from independent living --> assisted living --> nursing home levels of need. At $200K you might be cutting it close, she might need a reverse mortgage or borrowing from family members, with the idea the family would be paid back from the estate after she dies (this is DEFINITELY the "talk to a lawyer" point).

However the options here vary a lot by state and I would really talk to an elder care lawyer who has experience with this kind of situation.

[katieb4tom]

niq, thank you for all your thoughts on this! Our family discussion of this comes and goes, and I am not a regular here by any means. So, no clear path has been decided yet, but these additional thoughts about various considerations is appreciated. A concern of hers has been spending any money on a lawyer, as she feels very insecure with the total amount of money that she has for the rest of her life. So we will proceed slowly with her.