My Mom has some money saved but also has credit card bills. Should we pay off those cards?

went back and looked and she didn't say; didn't really say much of anything but have you noticed haven't heard any more from her?

that's right; thank you, Igloo, but, right, to go back to the original issue they're not dealing with Medicaid yet but I know they say to always factor that in to any plans that are made but don't remember if her mom had a house - gonna go back and look; do you remember her saying?

Deb - MERP is Medicaid Estate Recovery (or Recoup) Program (or Policy) & basically is a requirement within the Medicaid program to have any over 55 recipient of a medicaid program reimburse the state for those costs paid from their estate after death. Just what programs and how it is managed is done by each state uniquely - just like Medicaid is done. MERP often seems to come as a total surprise to family or heirs. When I applied for Medicaid for my mom, MERP was being done by state workers and was maybe done on 5% of estates. MERP is now being outsourced by many states and the contractors are very aggressively pro-active in recovery, really doing it as a debt collection agency would & they get a % of the recovery plus fees.

Your funeral story is pretty common. Really you have to see if old policies have kept up with the times. Most burial policies are like what yours had - an insurance policy that pays a FH upon death. To me burial polices are like annuities in that you have to be oh-so-very careful in doing this as contracts usually not in consumers best interest.

Mom was backside of 90 when she shattered her hip. Lewy Body Dementia.She refused to use her walker or to sit in her wheelchair to get about and would invariably shuffle along pulling either behind her. It was just a matter of time that there was going to be a bad fall. Although she could have ldone surgery, there still was significant anesthesia risk (she had rotor cuff surgery a decade before and sailed through surgery but had some anesthesia issues but did rehab real well), plus there was no way she could have done the required rehab as her cognition was just not there. It is the harsh reality of dementia. First few of weeks were bad but once they got a handle on pain management & bones healed, she was bedfast but good spirits. Being Lewy, she was still pretty knowing of people and time till maybe the last couple of months. Hospice really did a lovely job and they worked well in tandem with NH staff, so in many ways the last 18 months mom got lots of hands-on care.

But back to Shadowmay…… have you been able to go over your mom's financials to see what the situation is??

MERP? sounds familiar but can't think what that is -

not sure, maybe that's why my dad had them cash in both their policies, since they were cash value, and pre-pay their funerals - funny, in a way, never thought anything about it, guess just assumed everybody did, but when my parents moved back from Detroit in early 60s dad bought 4 burial plots for them and us way back then and their headstone with everything carved on it except their death dates so just grew up with that being a total non-issue. But, wow, never heard of anybody breaking their hip from pulling their wheelchair - so sorry - but also never heard of going onto hospice from breaking their hip either - unless, just thought of this, did she not have surgery or maybe replacement? like my mom did - she certainly didn't go on hospice, though, looking back and after what happened with dad and being told he should have and they could have been called in much sooner, seems like maybe could and should have been for her but nothing was ever said. They only died 4 yrs. apart but understand about having to stay on top of things; seemed like everything went fine with mom's but when came time for dad's ran into little issues like what you talking about, only more it was the obituary in the paper - there was a charge for this time; had issues with pallbearers as well with them being gone, but more their preacher was gone by that time and they'd just gotten one 6 weeks before who didn't know dad, though we were able to get the old one back but had to get it done and he had to come from over halfway across the state so needed to cover his expense (especially since his new job paid considerably less than what dad's church was paying him and he hadn't left voluntarily, not really, and especially since it was somewhat over the attention he paid to his older members; he was really good but apparently some of the younger ones didn't like it) - which maybe is why the former song leader who sang at mom's said he couldn't at dad's - so the one big disappointment dad would have had would have been to have not had a live singer - ended up having to use 2 CD's but turns out the new preacher, who had made a effort to come meet dad - too late, but not his fault - but also to talk to others about him and find out about him, which I did appreciate it, was also leading the singing so had him lead in a congregational at his funeral, which was somewhat unusual but not totally unheard of, at least not for him, where he'd come from, nor for me, but I think somewhat nonplussed those who were there, who I don't think ever had but I think they rather liked it after it was over, at least I got good feedback on it, maybe not from anybody from his church, but at least from family, so...does make me wonder about him and how it went back at the church; haven't heard - anyway....hadn't thought about prepaying floral, course didn't have that with dad, had the flag, with him being a veteran, so of course no charge there but they whole pre-pay thing was dad's idea; mom hated it, so guess she never thought or was willing to pay for anything beyond just the bare necessities at the funeral home, which theirs doesn't do the floral, assuming yours did, that it was done through them but that would have really been nice though don't think we paid anywhere near $500, wonder if prices are just higher where you are; one thing we did do for mom, just because we just happened to find it and it fit it so appropriately, when we were down looking at the caskets they'd picked out we found the boards they put in - which I never knew that's what they were, had always assumed they were just part of the lining - and found one with pink roses, like she loved so much, that said Mother and Grandmother, that we bought - thought had to do some wrangling; they're normally ordered when you order the casket, though only ahead of time? didn't understand that; how many people actually do that? but anyway they finally agreed to let us have that one and order another one - I mean, really, what would be the odds that somebody else would come in and want to order off that one before they could get another one in? or for that matter, I've heard of just renting the things; I mean, after the funeral it wouldn't have really mattered, now would it? oh, we did end up paying the new preacher some as well that the funeral home took care but we did have to come up with that money as well but none of that really took any time. The one thing with mom was the actual guy that still owned the funeral home wasn't there - was out of town - and his son tried to tell us that her pre-policy wouldn't cover the funeral costs with inflation - or rather - the value of the policy had gone down with the stock market crash that had happened - oh, well, it's a contract they're supposed to honor and they finally did but I was concerned for a bit there but he must have got hold of dad or something because didn't hear anymore about it and even all those other little costs that came up later were covered then.

deb - NCV = no cash value. For funeral & burial policies, if they are going to ever apply for Medicaid (which my thought is to assume that if they live long enough, they will run out of $ & so Hello! Medicaid application) they need to make sure the policy is NCV so it poses no issues for having to cash out for Medicaid eligibility.

You know its hard to just stay tippy-top on all things for your parents. My mom had a NCV prepaid policy. Dad died in the 1980's and they had a niche in a mausoleum fully paid as well. I assumed that all was done with a bow on it for mom's future needs. WHen she went onto hospice (broke hip @ NH from pulling her wheelchair…..) I went to FH to just go over things. Well surprise after surprise as to what was covered and what was not. Lots of things that were excluded from the policy were free & provided by the city back in the 1980's. Not so anymore (like police escort requirements & fees); everybody on mom's pallbearer list # 1 & # 2 had either died or physically unable to do…..; the $ 500 floral prepaid was excluded from inflation……etc, etc. Now I was able to get some things changed to her policy as it was old & grandfathered in to do changes but most policies you can't change and there end up being all sorts of costs added on. It took about 4 months to get all the changes in effect. Mom was on hospice 18 months so it worked out fortunately.

The whole debt & death issue depends so much on state laws. I'm dealing with probate for my mom; for her state - TX - it's a level of claim probate state and with CC being a Class 8 debt (btw MERP is Class 7). So usually the Class 8 CC claims are not paid as there is no funds left in estate once the prior classes are paid.

but that might not work because if all they have is their home the whole estate process can be circumvented so if they've not paid the bills and used the money to pay for their care there won't be any money for them then

Hey igloo, the 1099-C can be issued up to 3 years later depending on statute of limitations in your state. Some accounts get sold to collection, some do not. If you think about it, it is not "phantom income". After all, person got stuff on credit cards and did not have to pay. Payment in goods and services IS income if you do not have a fair exchange. I was just warning folks that the strategic default strategy has more complex issues involved. And it should. Non payment of debt is serious. Some companies wait in case senior dies so they can make claim on estate in case heirs were trying to preserve assets for themselves.

also, Decatur, just like on other thread, I don't see any way to contact you.
But regarding the funeral "trust" issue, not sure if this is what you're meaning or not, but didn't realize until the time care that the pre-buy funeral that my parents bought wasn't actually bought from or paid to their funeral home, even though it was purchased at it, but was actually an insurance policy and is something I've tried to get them to do but they don't really understand that's how it works and with things that have happened in this state that have led to that being the way it has to be done anyway, they're concerned about pre-paying, so....also it is an allowable approved VA expense as well

also, igloo, what is an NCV funeral and burial policy?

igloo, trust that's not your situation; talked to a tax person as well and went over the 982 sheet and determined that in hub's aunts/uncle's situation - which, btw, they did not sign over their doublewide to their son, only the land it sits on, which maybe they should have gone ahead and done the dw as well, since it now counts as an asset and I don't think their debt is as much as their dw, since it was bought brand new custom ordered, paid for with the fund from the sale of their previous home and property so could claim the insolvency aspect of the 982 - as someone (you?) they may be low-income but not impoverished. So don't think letting the debt be cancelled will work even though had forgotten about the IRS then being able to attach their social security but you're right, was just thinking that if they weren't paying their debt they could then use those funds to pay the taxes, except for the fact that the point of all this is to free up the funds to pay for their care, which if their funds ended up being attached they would still be in the same situation. (I'm going to flip back to previous page and seems my comment's gone away when I've done that in the past so going to go ahead and post this)

Regarding "phantom income" (& GuestShop please add your thoughts) here's my experience due to MIL CC: any creditor owed over $ 600.00 (IRS income reporting threshold) can issue 1099-C Cancellation of Debt. Usually is creditors who have a system for this - like CC company which is part of a bank group - that issues 1099 as they issue all sorts tax forms (eg interest, dividends) as a matter of routine. But any original creditor/OC owed over $ 600 can do a 1099-C.

1099-C do not have to be issued the year that you defaulted. Debtor can carry it on their books with interest & fees. (NOTE: Debt will likely have been sold to a debt collection agency too but collections cannot issue 1099-C). For my MIL, it was a couple of store issued VISA cards defaulted & had interest + fees that added about 1/3 more to original amount. Total 1099-C amount became "income" reported to IRS by OC. Totally Phantom Income. But income, so taxes owed.

For those on NH Medicaid, this poses 2 problems:
1. If your state does Medicaid income match up with IRS, it shows up. If the 1099-C amount takes you over allowed assets, then ineligible for Medicaid.
2. If taxes are owed and not paid, IRS can place a lien on SS. Most debt collectors can’t get SS income as it’s protected from lein or garnishment. But IRS is a “super-creditor” and can. For those on NH Medicaid, this matters because they HAVE to do a required co-pay of their monthly income to the NH for Medicaid compliance. Between these 2 factors is kinda why the need to do 1040 & 982. Hopefully, zeros out so no taxes due or income made.

In the past, mostly 1099-C were issued on foreclosures (or short sales). Most 982 info and worksheet is geared to foreclosures. I went over & over on it and it could have been written in Latvian for all I knew. So we got our tax person to do it for MIL & she got it to zero income so no Medicaid income issues or IRS taxes due.

Phantom income and taxes due seem to come as a totally unexpected & expensive surprise. Can you imagine the taxes on a 300K house that you walked on & kept no records of expenses on to offset the amount……..yikes!

Perhaps my viewpoint in my first post has been misinterpreted: if shadowmay's mom has the funds to pay for all her future NH care and her debt, then great & pay it. BUT if its the case that her mom is going to apply for Medicaid for her NH, then imho consideration needs to be made as to how best use the limited funds mom has in savings as her "spend-down".

Shadow hasn't posted as to whether mom's assets are 10K or 100K, or if there's a house owed outright or has a mortgage, etc.; or just what the $ituation i$.

But whatever the case, once on Medicaid, moms income will need to become her required copay or SOC (share of cost) to the facility. Mom will have NO funds to pay any preexisting debt - whether its CC, or life insurance ( if she still has premiums); pay any costs on her home (if she still has a home); pay for dental, eyeglasses, hearing aids; funeral or burial policies. Mom will have only a small PNA - personal needs allowance - that varies by state from $35-105 a month. PNA is just enough to maybe cover beauty shop & perhaps phone or cable.

Family may find that rather than paying off her CC (which is unsecured debt), it is a better use of mom's asset spend-down to get a fully prepaid medicaid compliant funeral & burial policy; dental work; paying off in full any term life insurance policies if possible; new eyeglasses, new hearing aids, a really nice walker or wheelchair as all these on Medicaid are the most miminal; and a new more suitable wardrobe that will withstand the high heat laundry of the NH. If mom owns a home & it's going to be sold, then spending funds to make it market ready (& maximize house value or make it market competitive) is a good use of funds as well. And spend on getting mom's legal updated as needed.

To me in my experience, if they are going to be on Medicaid and have to do a spend-down, it's better to spend down on things with direct benefit for the elder rather than a CC company. IF you have to make a choice due to limited funds

Lets say Shadow's mom is 80 & has 30K in savings & lives in an apt & has 25K in CC debt. Mom fell broke both hips. Mom goes to NH for rehab (a Medicare benefit) and it's obvious she will need to move into skilled nursing care for the rest of her life in the NH section of the facility. Mom has done no advanced planning. So what to do with the 30K to qualify for Medicaid? - mom could pay the 25K in CC debt and then just be left with 5K as her total assets. OR mom could set aside 2K for the maximum allowed by Medicaid as an asset; get a prepaid NCV funeral & burial 10K; get much needed dental work 10K; get legal done (will, DPOA & MPOA) 1K; new eyeglasses & hearing aids & special wheelchair 4K; new clothes that work for someone who is now bedridden 2K; her final mo. apt rent and getting her things removed 1K. That's 30K right there and all a direct benefit for mom's long term.
What would you spend the 30K on?

The real answers can only be developed after a sit down review of each potential medicaid applicant's particular situation. Including current and projected next year medical expenses, current assets, dates of any asset transfers, ability to pay private pay for any period of time, cost of local private pay skilled nursing, individual incomes, and more .

Consideration of the possibility of a community spouse and their future support is also a driving factor.

As in the case by 'debdaughter' about 5 past on this thread:

They probably can liquidate the IRA in part ,or whole. and with medical expenses reducing tax hit. A FUNERAL TRUST, is an immediate approved Medicaid Spend down. It does need to, and should not be purchased at a funeral home, additional trusts can be purchased for siblings as an approved Medicaid spend down, these particularly should NOT be tied to a funeral home to avoid risk and provide PORTABILITY.!
There are approved ways to apply and "shorten" penalty period,
needless to say the IRA is an asset, which if not dealt with will merely become a part of spend down, and nothing left to pay the final expenses they mistakenly think that it it will

While debt is also a spend down, serious review is in order to decide what to pay
We offer this service and consultation are no charge, if in Georgia contact me.

I'm not entering onto the legal obligations of your mother's credit card debt because I'm not familiar with US consumer law; but I'm surprised that no one has asked what she used the credit for, and whether she was competent while using the cards. If, for example, she acquired these credit cards recently and was buying - oo, I don't know - scuba diving equipment on special offer, or wildly extravagant gifts for the family or something, it might be a different scenario from one where she'd been continuing her normal practice of using credit cards responsibly to spread the cost of major purchases.

But money you spend on a credit card is real money, that you are borrowing and which you have undertaken to pay back. All things being equal, you should treat the debt as prior expenditure and deduct it from her capital when you draw up her balance sheet.

credit rating s are ridiculous py no attention to them when it comes to your parents. if they have no money then let it go. the government has already taken more than they deserve anyway.

forget the government…they r morons. they screw up the post Office the Vet administration Obama care..u name it…. just put EVERYTHING in your name 10 years ahead of time .

put everything in her name in yours 10 years before u think it will hit.

I think we're really talking about Medicaid; Medicare is only temporary for this type of situation

Persons who advise paying off the credit card debt are clearly responding with an OPINION that this is a moral obligation at least as much as a legal one. I, for one, would not want to be responsible for you making such an important decision based on my own personal views -- or anyone else's. Please do NOT rely on those OPINIONS. I strongly urge you to seek legal advice but only from a lawyer experienced in elder law and knowledgeable about Medicaid in your state; otherwise you are likely to receive only another OPINION.

The reason that credit card debt carries a much higher interest rate than debt secured by a mortgage, for example, is precisely because the lender/credit card company is accepting the much higher risk that it won't be paid back by some people. FYI, children have no legal obligation to pay parents' credit card debts BUT neither can children (or grandchildren/other family members) benefit from their parents' assets at the expense of the taxpayers. Public assistance from taxpayers, such as Medicaid, is NOT available so as to allow one to pass money or property to family members! I think an elder lawyer will tell you that, UNLIKE paying for a grandson's insurance policy or transferring ownership to a son of a double wide, paying off credit card date does NOT affect Medicaid eligibility.

That said, if the elder's future needs are likely to include new eye glasses, new (replacement) clothing/shoes, dental work and/or funeral/burial costs, those will not be provided by Medicaid and the elder will either go without them or the family will have to pay for them. OR, these things for the elder's care CAN BE purchased legitimately with their savings (with some limitations; ask the lawyer) any time during the five year period Medicaid "looks back" to determine eligibility, including right now which seems likely to be towards the end of that five year "look back" period. Will your parents' future needs be BETTER SERVED by pre-purchased burial insurance, having needed dental work done now and purchasing a reasonable supply of clothing and extra pairs of eyeglasses more than they will be HARMED by a poor credit rating?

Angels watch over you on this journey!

Ways of paying credit card debt: 1) Monthly payments as billed, paying the minimum until you see an attorney and know more, keeping the credit line open. 2) Contacting the credit card issuer, cancelling the credit line, and arranging affordable monthly payments; can be done through Consumer Credit Counseling, until you know more. Always look at the finances as a whole: You may need the savings for down payment or advance payment on a nursing home. Then, waiting for Medicaid bed to be authorized, funds held can be applied towards her rent/care. This gives you the option of getting care when she needs it instead of when Medicaid approves it much later. The credit cards can be paid after a home is sold. Always look at the whole picture. See an elder care attorney.

I think the credit card debt should be paid. She incurred the debt, it should be paid.

States have different laws regarding benefits. Medicare have their laws too. Its better to talk to professionals in order to make informed decisions.

All income is counted before AGI is figured - does that answer that question?

Does Medicaid count the 1099c income before or after adjusted gross income is figure from IRS

You're going to have much more to think about than credit card debt. Usually, a credit card company sells the debt to a Collection Agency (never heard of the 1099 Phantom Income thing being applied to an individual - only companies with LARGE debt). Their biggest threat is that it will affect her credit rating. I don't think her credit rating is the worry here. Let it go.

I very much agree with igloo; I've been trying to get help for my husband's aunt and uncle for a couple of years now and they are paying on a term life insurance policy for their grandson, as well as a small burial policy for themselves while they also have credit card debt they are paying on while doing without hearing aids for her, while her hearing goes; their son has been buying her glasses while they have money sitting in a IRA that they won't touch because it's supposed to be for their funeral but they won't buy a funeral policy so this money counts against them for getting any help but they won't use it for any either. But, unlike igloo, don't believe you can pay an actual term life insurance policy; one that has a cash value built into it as well, yes, like I have on one of my children (which, thank you for reminding me), but not one that doesn't but, yes, if she doesn't have a nice walker - that is one thing they did do while they could for him and so glad; it's been so nice for him - it's just been so hard on her to feel she isn't still able to do that anymore and she needs new clothes as well. They sold their home and bought a brand new custom order manufactured double wide home, which is quite handicap accessible with a walk-in shower with a seat that has helped him to be able to stay at home but has left them, though, now strapped for funds to have the help they need to stay in it; they had this moved to their son's property, which was partly theirs at the time but instead of keeping it that way so they would have that now to use to be able to sell, they signed it over to their son so now they have no property though they could probably sell the doublewide; that's probably what he would/will do with it anyway - except I don't think he will get it all; they do have a daughter as well, but meanwhile they're using their money to pay on this credit card debt.
It's with their local credit union so I'm not really sure how aggressive they would be anyway in trying to collect; they already know what was behind it in the first place. Their concern is them attaching his private pension, which is basically what they're using to pay it anyway but which is also hurting them from being able to get any help to pay for help but they won't use it either, which I suppose if they didn't pay on this credit card they might go after it but I just don't see that and I don't see them needing any more credit; think they are probably on their last vehicle; he doesn't drive and she doesn't much and even as of today they probably aren't going to need credit anymore anyway; at least if they'd use the money they do have.
Now I hadn't thought about the tax implications in their situation; that might be an issue.

Regardless of her medical situation, the credit card debt has to be paid either before or with her estate funds, but check with each creditor about a reduction in interest, and also rules about Medicaid in your state which are different per state.

This is an eye opener. Really, I have no input, but would like to ask; what is the "lookback" period timeframe and what assets are dissolved and what is untouchable? Does it vary from State to State? It makes sense to have an Elder Attorney handle these situations. Would it be wise to have Medicaid forms filled out in advance to save time, frustration and costly mistakes? From what I have been told, Medicaid applications can take months without results including mounds of paperwork, phone calls, forms and more forms with applicants pleading for help. This just seems a horrible nightmare...loved ones should not need to go through this!

Igloo, you are right, but that IRS form info was not in your original posting and I wanted to make sure that sort of consequence was included in OP's or other readers decisions on seeking advice:) The tax client was very unpleasantly shocked and was not considered impoverished, although they are low income - both he and his wife are still working. As you said, professional advise that includes all factors in planning would be best.

yes