I know there's a five year look back for medicaid. I'm worried about what happens if my MIL splits her money between her two sons and then she needs care in a NH. My BIL is living hand to mouth and I'm fairly sure that he and his wife will spend their share of the money fast way before the 5 year look back is over. When I said that to my husband his answer was "Well ... I'll just tell him he can't spend it for 5 years" ... OK and I'll tell the earth not to rotate ... or the sun not to shine ... I think I'll get the same response. There's no problem with us holding onto it but they are another story. Wondering if it means anything since my husbands name is also on the account with my MIL It has been on the account with her for years ... (survivor to take all account). Does something like that change things with the 5 year look back? We're in New York ... Thanks for any ideas ... information or help anyone can give me ... I know there are a lot of very knowledgeable people on this board and I want to get an idea of what the thoughts are here ... Thanks ... Peg
Maybe take the folks shopping to see some assisted living communities in their area. Once they see the cost of these they may change their minds on giving away money now. A trust would protect the funds while at the same time providing a method for inheritance to be distributed upon death. In fact the account that your spouse is on, if coowner, should be changed to a POD. Do the folks have Powers of Attorney setup? Very important to get that addressed now while they are still able to do it.
The big issue is Medicaid eligibility. If she gifts money, she won't be eligible for Medicaid. If she's not eligible for Medicaid, then she's going to have to be cared for by someone at home. Is Walmart bil up for that?
Is MIL's idea that by splitting the money now, she "hides" it and avoids using it to pay for her care? She can't do that.
I think I would take her to a lawyer and have her/him explain this all to ALL of you, in the same room, so that there is no confusion.
If mom's oblivious without any dementia, then were is the loss of contact with reality about finances coming from?
Also, if she does go through with this which I wish was someway to prevent, then she is creating a gift tax if the amount is beyond the limit of gifting for each person? Would she be able to pay the gifting tax if she passes the limit? Does she grasp that by giving the money away she eliminates every getting additional government help if she were to need it?
If she doesn't get that, then I'd find a gerontologist or neurologist to evaluate her for a second opinion.
She just may be extremely stubborn and in denial of reality without having dementia. Has she always been this stubborn and sort of out of touch with how life really works?
I've known some people like that, but they were usually pampered by their husbands and had a very rude awakening when the husband died. I wish husbands did not do that to their wives. That is so abusive and treats the wife like a child instead of like an adult.
Trying to find info on whether there will be a gift tax due ... I don't believe so because of what I read online on the Turbo Tax website which says ...
"The annual federal gift tax exclusion allows you to give away up to $14,000 in 2014 and 2015 to as many people as you wish without those gifts counting against your $5 million lifetime exemption. (After 2015, the $14,000 exclusion may be increased for inflation.)
Say you give two favored relatives $20,000 each in 2014 and give another relative $10,000. The $20,000 gifts are called taxable gifts because they exceed the $14,000 annual exclusion. But you won’t actually owe any gift tax unless you’ve exhausted your lifetime exemption amount. Assuming you haven’t, the two taxable gifts simply reduce your lifetime exemption by $12,000 [($20,000 - $14,000) x 2 = $12,000]. The $10,000 gift is ignored, because it’s below the $14,000 annual exclusion.
If you give three individuals $14,000 each in 2014, these gifts are ignored because they don’t exceed the annual exclusion."
By the way that reads my MIL will have to report the gift but won't have any gift tax on it. My head is swooning and I feel like I could scream ... I don't want to get caught in anything because of someone else's doings.
I'm not so sure your MIL's money "management" is unreal as it is either a (1) lack of financial understanding of the investments and tax issues, or (2) a bit of confusion about the issues, or (3) not really wanting to take the time to learn and understand the issues.
What you might consider is developing a plan for management of her assets for her, and have your husband present it, unless you and she have a good rapport. I'm thinking if one of her sons raises the issue, she'll think it's suggestive rather than interfering, as some MILs might think. Apparently she's become more of an "independent" thinker since her husband died.
The trick might be allowing her to think it's really HER plan, not a suggestion by the responsible son.
Do you think she'd listen if either you or your husband had a heart-to-heart talk with her? I suspect though that even thinking about leaving her home is probably not in her mind at this point, so I would focus on the gift tax issue.
It wouldn't hurt to prepare a draft 2015 1040 return showing her what she'll be losing if she doesn't follow the gifting rules. That might be more impressive than anything you or your husband could say. Those big numbers on the "tax you line" on a 1040 tend to be a wake-up call.
I think the funds already deposited by the BIL are probably on their way to extinction through spending. Unfortunately I don't know if anything can be done about that now. As the saying goes, the horse has already left the barn.
I'm thinking at this point though it wouldn't hurt to see a tax adviser for advice to see if there's any way that the approximately $100K funds can be salvaged w/o incurring gift taxing penalties, but I kind of doubt it, especially if it's in BIL's account and he's the sole owner of the account now.
I've prepared some Form 709 gift tax forms for one EP attorney for whom I worked, but I'm not familiar with the issues of lifetime exemption and how they factor in.
Another avenue of investigation is to e-mail IRS with your questions. I've done that several times in the past and prefer it to calling because with an e-mail, I have advice in writing. I've gotten different interpretations on the same issue when calling.
I used to have a link to e-mail IRS but I don't have it on this computer.
Sometimes financial advisors have so-called retirement seminars. There are quite a few in my area. They use the lure of providing retirement planning to get clients, but you might be able to get some free advice on the gifting issue. Generally you usually at least get a rubber chicken dinner.
It is frustrating to see people throw money away foolishly, especially to an in-law who hasn't demonstrated responsibility.
I also don't understand why you would be concerned about getting "caught", apparently if you don't interpret the gift tax situation correctly - it really isn't your responsibility. Not to challenge your understanding or financial knowledge, but the family should see a tax pro if there's a concern about tax on gifts. e.g., a $20K gift may not be fully taxable, it might only be the excess of the $14K exclusion.
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