Inheritance/retirement question

[tooge]

Ok, here's the scenario. My Mother in Law is 83 years old. She is currently living in an assisted living facility. My wife does the bulk of the work in taking care of her outside of the facility, driving to Dr visits, taking her out to lunch, any other appointments, etc.

My father in law passed away two years ago this feb. He was a WWII vet, having served in Okinawa in the Marines. After serving in the Marine Corps, he went to work for the USPS, where he retired after 35 years. He has a pension, that my MIL gets from the USPS to the tune of $1700 per month.

My MIL worked for the school system as a lunch lady for over 30 years. She has a pension through a non teachers pension program to the tune of $1600 per month.

My BIL wants to pay $2200 to have some company called American Veterans Aid to do all the paperwork to try to get her the VA Long Term Care Benefit since pops was a war vet. It's the Aid and Attendance program. From the research I can find, she doesn't qualify because she makes too much ($3300 per month) with her two pensions. He says that if she doesn't qualify, then we need to "hide" her money by giving it to both he and us. I'm calling BS.

My MIL has a sizable sum of money in money markets/ CD's, and old war bonds. My BIL is trying to get her to gift as much of that to us, our kids, him, his kids, etc. I think his ass is just greedy because his wife likes to shop and bankrupted them several years ago, but thats another story.

Any of you financial planner types out there know what is the best way to handle her large sum of money, her monthly pension, the VA program, and if it's viable? Any help would be great. Thanks

[Great Expectations]

If her money is sizable (over $500k) I'd call a trust company. Their consultations should be free, but they will refer you to an attorney that cost money to draw up the trust.

[alnorth]

Not a financial planner.

Monetary gifts to family members does not lower your income. You can set your money on fire for all the government cares, you earned it before you burned it, and thats all that counts. The feds will know how much she makes from her two pensions.

[tooge]

Originally Posted by Great Expectations

If her money is sizable (over $500k) I'd call a trust company. Their consultations should be free, but they will refer you to an attorney that cost money to draw up the trust.

It's about half that.

[mikeyis4dcats.]

not sure about in this case, but in many instances any assets can be clawed back 2 years for consideration (i.e. medicare, nursing homes, etc). In that case, this may not even fly IF you could manage to do it legally...

[alnorth]

The only time giving money to family members starts to make sense (as far as taxes are concerned anyway) is if you have a MASSIVE estate worth well over $5.5MM, and you are getting close to death.

If you are not super-rich then schemes to give lots of money to lots of people are dubious, unless you are just being charitable.

The estate tax exemption is currently about $5.5MM and you can currently give away $14,000 per person per year without lowering that. So, say you have an estate worth $7MM, if you gave $14K/year to 10 people for 15 years you'd probably lower your estate's value below the estate tax exemption.

[excessive]

I'm not a financial planner, just have been through this stuff personally with my MIL.

It's routine for families to drain off the assets in order for the parent to qualify for assistance. My wife has worked in residential elder care for over 15 years, at some the nicest, most expensive facilities. Most of her very well-to-do patients are "broke," but at the same time paying 8 to $9000 a month for care, with government help.

Problems is, you have to to transfer the money before they actually need the assistance, like 4 or 5 years ahead of time. You can't just hand it over to family and then apply for the help. It doesn't work that way.

Btw, your BIL is likely just greedy. Talk to an attorney. They can give you the details.

[Bwana]

http://time.com/money/4272083/estate-taxes-who-pays/

[alnorth]

Originally Posted by mikeyis4dcats.

not sure about in this case, but in many instances any assets can be clawed back 2 years for consideration (i.e. medicare, nursing homes, etc). In that case, this may not even fly IF you could manage to do it legally...

I assume her assets don't even matter since according to the OP her income is too high anyway, and there's nothing you can do about pension income.

If this were a case where she was only getting social security but had a ton of assets, then yeah a lot of these medicare and nursing home situations will look back years. If you are going to give away all your money and claim poverty, then you'd better do that a long, long time before you plan on signing up for whatever government program.

[scho63]

7 Things You Should Know About Gift Tax
Which Gifts Are Taxable And What Can Be Excluded

https://www.irs.com/articles/7-thing...about-gift-tax

Have you given or received a large gift? Do you know what the tax consequences are? You may be subject to the 40% Federal Gift Tax.

According to the IRS, a gift is "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return."

The gift tax is the responsibility of the person who gives a gift (i.e. the donor), and the amount of tax due is based on the value of their gift. The person who receives a gift (i.e. the donee) is generally not responsible for paying the gift tax. However, if the donor does not pay the gift tax, the donee may have to pay the tax instead.

The gift tax was implemented in order to stop people from dodging the Estate Tax by giving away all of their money before death. While most individuals don’t need to worry about having to pay the gift tax, there are a lot of people who neglect to file the proper paperwork.

Here are 7 things you should know about the Federal gift tax:

1. Gifts to Family Members Count

The gift tax and exclusion limit (below) apply whether you are making the gift to a complete stranger, a nephew, or your own children. The only person you can give a gift to that is exempt from the gift tax is your spouse. Gifts to your spouse qualify for the marital deduction.

2. There Is an Annual Gift Tax Exclusion

You do not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year. Currently, the annual exclusion is $14,000 per recipient. In other words, you can give up to $14,000 to each of your children this year without having to pay any gift tax.

3. There Are Also Educational and Medical Exclusions

Payments that you make on someone's behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes. However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion. You can also place funds directly into a 529 education savings plan to avoid the gift tax — but note that certain rules apply.

READ: Federal Education Tax Breaks for Tuition and Fees

4. You May Need to File a Gift Tax Return (Form 709)

In general, you must file a Federal gift tax return (IRS Form 709) if you gave someone more than $14,000 during the year. In some cases, you are required to file Form 709 even if your gift was below the $14,000 annual exclusion. Note that only individuals are responsible for filing gift tax returns — corporations or trusts that make gifts will pass the filing and payment responsibilities onto their individual stockholders or beneficiaries. Additionally, a married couple cannot file a joint gift tax return.

Form 709 is an annual return that is due by April 15 of the year after the gift was made. While this is the same deadline as the individual income tax return (Form 1040), the gift tax return must be filed separately. You can request a 6-month filing extension for your gift tax return with Form 8892 (Application for Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax). Furthermore, if you use Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) to obtain a tax extension for your 1040 return, you will automatically receive an extension for Form 709.

• Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return
• Instructions for Form 709

5. Married Couples Can Give Twice As Much

Spouses can each give up to $14,000 to the same recipient and still stay within the annual exclusion threshold. Together, a married couple can give $28,000 to each donee without incurring the gift tax. Most tax professionals recommend that married couples give money in the form of 2 separate checks, each signed by one of the spouses, to avoid any confusion.

READ: How to Determine Your Filing Status

6. Each Donor Has a Lifetime Exemption

This refers to the total amount that an individual can give away during their entire lifetime. If your gift exceeds the $14,000 annual threshold, it must be reported as a taxable gift on Form 709 — however, that doesn’t necessarily mean you’ll have to pay the gift tax. Instead, you can apply the gift towards your lifetime exclusion from the Federal estate tax.

The “basic exclusion” (also known as the “unified credit”) represents both the lifetime gift tax exemption and the estate tax exclusion, signified as a total amount of $5.34 million. The current law allows individuals to give away up to $5.34 million over their lifetime without having to pay gift or estate taxes.

But keep in mind; any portion that’s used to avoid the gift tax reduces the amount that will be exempt from estate tax. For example, if you used $2 million of the exemption to make taxable gifts during your lifetime, you will only be able to exclude $3.34 million from the estate tax. If you surpass the $5.34 million limit, you (or your heirs) will have to pay up to 40% tax.

You can give someone $14,000 per year and it won’t affect your lifetime exemption (because gifts below the annual threshold are not considered taxable). If you exceed the $14,000 annual gift tax threshold, you must file Form 709 and report the amount that counts against your lifetime exemption. You should also hold onto any relevant paperwork so your heirs can properly compute the estate tax later.

7. Promotional Gifts Aren’t Considered “Gifts”

If you receive a gift as part of a promotion — for example, a car is given away to every member of the studio audience — then it does not count as a “gift” by IRS standards because the giver is getting something in return, namely self-promotion. This means that the tax burden for a promotional gift falls on the recipient (because it increases their wealth) and is not eligible for the annual gift tax exclusion.

[Amnorix]

Originally Posted by tooge

It's about half that.

Doesn't sound like she is at risk for paying federal estate taxes, but possibly state estate taxes. What state does she live in?

If that state has an estate tax, then you should look at what other assets she has. Does she own a house? 401(k)? I mean, total up everything. you don't have to tell us, but if it comes out to a big enough number where inheritance taxes will start eating into it, then gifting assets prior to death becomes a very viable/logical/preferred strategy.

[DJ's left nut]

Originally Posted by tooge

Ok, here's the scenario. My Mother in Law is 83 years old. She is currently living in an assisted living facility. My wife does the bulk of the work in taking care of her outside of the facility, driving to Dr visits, taking her out to lunch, any other appointments, etc.

...

My BIL wants to pay $2200 to have some company called American Veterans Aid to do all the paperwork to try to get her the VA Long Term Care Benefit since pops was a war vet. It's the Aid and Attendance program. From the research I can find, she doesn't qualify because she makes too much ($3300 per month) with her two pensions. He says that if she doesn't qualify, then we need to "hide" her money by giving it to both he and us. I'm calling BS.

I believe that's the exact company my in-laws used (or at least did something very similar) for my MIL's mother, who is living exclusively off veterans benefits she gets via her husband who died about 10 years ago now. She's gone a little 'round the bend so they have her in assisted living in the memory care ward and it's not cheap. So they were trying to find some ways to get a few more benefits and this hit their radar.

According to my father in law, it's been worth what they paid for it and then some. It's meant that they have to hold onto some of her assets a little longer than they'd like (for instance, they aren't going to sell her house now), but in the end they came out quite a bit ahead.

It's secondhand but my FIL has generally been pretty up-front with me when he dicks something up; i've been around for nearly 20 years now so I guess he figures I'm not going anywhere anytime soon. He thinks it's worked out quite well for them.

[Amnorix]

Originally Posted by mikeyis4dcats.

not sure about in this case, but in many instances any assets can be clawed back 2 years for consideration (i.e. medicare, nursing homes, etc). In that case, this may not even fly IF you could manage to do it legally...

So you're talking about Medicare qualification, more particularly the rules of the state in which she lives. In Massachusetts the look-back period is five years. This only comes into play if she is heading into a nursing home, but yes, proper estate planning can include transferring assets into a trust to avoid having the government take it away if/when she goes into a nursing home.

This stuff gets stupid complicated/tricky, and is largely driven by taxes. It's not really something you want to try to do it yourself on, unless her cash is all under her mattress.

[Amnorix]

Originally Posted by excessive

I'm not a financial planner, just have been through this stuff personally with my MIL.

It's routine for families to drain off the assets in order for the parent to qualify for assistance. My wife has worked in residential elder care for over 15 years, at some the nicest, most expensive facilities. Most of her very well-to-do patients are "broke," but at the same time paying 8 to $9000 a month for care, with government help.

Problems is, you have to to transfer the money before they actually need the assistance, like 4 or 5 years ahead of time. You can't just hand it over to family and then apply for the help. It doesn't work that way.

Btw, your BIL is likely just greedy. Talk to an attorney. They can give you the details.

This guy knows what he's talking about.

[alnorth]

I guess if her two pensions have a cashout option, then she can take whatever the present value of her pension is as a lump sum payment (which eliminates her future income), then give away all that money plus whatever else she has, wait a few years for the clawback period, and THEN she might qualify for assistance...

... but if you do that then you are (legally) ripping off the taxpayers, and I feel dirty just for bringing it up. Hopefully her pensions do not allow her to cash out so that this is not even an option.