My mom is in assisted living with dementia. She owns her condo and also owns my house, which she purchased when I was going thru a divorce. She has a trust, and the 2 properties are spelled out as the condo goes to my sister, and my house goes to me. Unfortunately, Mom's name is the only one on the mortgages. We are concerned about her outliving her money and needing Medicaid; the 5 yr lookback rule is worrying me. I lost my job in October and cannot afford to purchase my house to get it out of the mix. The bank has sent me paperwork to assume the loan. Can I assume it without violating the 5 yr lookback rule? Can my mom sell it to me for less than market value if it was her primary residence? She lived part of the last year with me off and on, but we have no documented proof of this. I do not want to lose my house, but my sister is fine with selling the condo to help pay for mom's care above the LTC policy she has. Also, I had to take money out of her investment account to cover the gap between LTC and reality and my son in law, who managed the account for her, never advised me against doing this and the tax implications I'd face. Can he be held liable in any way?
Trusts are beyond me, so I have no idea what the Medicaid look-back implications are of the bank having you assume the mortgage. I don't think Medicaid cares who's paying the mortgage, except that if mom is applying for Medicaid all her income would need to go toward her care so she wouldn't be able to pay for a mortgage or any other house expenses. More important than who is paying the mortgage is whose name is on the deed. Even if you assume the mortgage, if your mother's name is on the deed Medicaid would consider that she still owns the house, as indeed she does legally, and they could put a lien on it.
If the LTC insurance, the investments, and the condo proceeds will cover care for 5 years, then it may still be practical to transfer the title to you, assuming there is a POA with authority to do this. Bring any paperwork that you have to the meeting with the lawyer. The LTCI paperwork should indicate if it is a “partnership” policy that allows more assets to be kept while qualifying for Medicaid.
A tax preparer can look at her income, including any capital gains, and see how much the unreimbursed medical expenses for her care can be deducted. If 2023 only included only a few months of care, there may be some taxes due, but it probably isn’t as bad as you fear.
I doubt your SIL can be held liable; I wouldn’t recommend pursuing it if he has been pitching in to help as an unpaid family member, but if he’s been well paid for his services, I’d be tempted to replace him with a fee only distribution planner who does tax planning.
You’d probably like a projection of what each of the next five years taxes could be expected to look like. An explanation of “step up in basis” on inherited assets should also be sought so you’ll have a better idea of balancing the risk of dying too soon against the risk of living too long.
The 5-yr lookback rule won't apply once a transaction is outside that window of time without your Mom needing to apply for Medicaid. But no one can predict this. I'm waiting for 2024 to end since it will be the 5th year post-purchase of my Mom's house (she's currently 94 and her cognition is nose-diving but she still has a reasonable amount of funds left for her care).
"I had to take money out of her investment account to cover the gap between LTC and reality and my son in law, who managed the account for her, never advised me against doing this and the tax implications I'd face."
You faced? Not your Mom? Was it your money? Seems like it was your Mom's... so not sure why you'd have had tax exposure on this action.
If you do purchase her house, for purposes of Medicaid scrutiny it must be at FMV. But do get professional advice before doing anything. It may seem expensive to do this but as you've found out it will be more expensive at tax time if you don't.
You do need to see the lawyer that wrote the trusts. If irrevocable youbhave no problem. Trusts are done to protect assets and to bypass probate.
You cannot mess with this without help.
It is sounding to me, with your mom, as you saying being the only name on the deed that she did NOT move these properties into the trust.
The TRUST should now be the owners of these properties, not your mother. Otherwise the trust cannot administer these properties and what the trust says about them is entirely irrelevant.
People who often make Trusts don't understand them at all.
They fail to legally file to get their deeds/properties filed as now belonging to a Trust.
If they don't do this the Trust is worthless. And the properties still simply belong to "mom".
If she is the owner of TWO properties I don't even see how she GOT medicaid, let alone understand what clawback would be.
You need an attorney right away.