They will be used to pay the nursing home. We are filing for medicaid for my dad. he is in a nursing home, that is why we have to cash out his policies. they are worth about $40,000 dollars. we will have to use all the money to pay for nursing home should we have taxes taken out ot not. this is so confusing.
Best wishes/Good luck/Stay strong
ntsujimura
ntsujimura
Take care,
Carol
If the total premiums he has paid to the company for these policies over the years are greater than the cash value, then no tax will be due.
Scott
For funeral & burial pre-need polices complaint for Medicaid, it seems each state places a maximum on what is allowed for this ($ 8 -10k) and it has to be NCV (no cash value). No matter what, there will be costs that fall outside of the pre-need as some things are not within the funeral homes control. My moms was done in the 1980's and back then police patrol from church to cemetrary was done as a courtesy & free, now it's a minimum of $ 500.
You may be able to set aside all of the insurance policy cash in a pooled trust account for your father. Talk with an elder law attorney in your state, who can assist you with the Medicaid application, and help you protect your father's quality of life.
Funds deposited in a pooled trust account (also known as (d)(4)(C) trusts) can be used for any suitable purpose that assists the account beneficiary. Hiring an accountant to take care of tax filings and all of your questions would benefit your father. An accountant can be paid from the funds that you set aside in the pooled trust.
More important, the trust funds can be used to supplement care that staff in the nursing home are not able to provide.
You will probably not have to pay any taxes at all on the cash value of the life insurance policy. In most cases, when someone cashes out their life insurance, the total sum of premiums paid is greater than the cash value. The only time you have to pay tax is if the cash value is greater than the total sum of premiums paid.
But even if you have to pay a tax it would be minimal.
For example, if the cash value is $40,000 and the total sum of premiums paid over the years is $35,000, then only $5,000 would be taxable.
Scott