<p>My 87 yo mother has moved in with us after suffering a fall last winter. I am her POA and have since taken over all of her daily matters including banking. Long story short, she has an annuity that she wishes to liquidate and gift to my siblings and myself so as to “be sure we will get it and not medicaid if she ever needs a nursing home.” (We understand that Medicaid has a 5 yr look-back period.) Since she sold her home and now lives with us, her other income (pension and SS) will be more than sufficient for her.</p>
<p>Her only concern is that we will have to pay income tax on it. We seem to remember something about there being a limit as to how much she can gift per year per child, but we can’t remember if that limit pertains to Medicaid’s parameters or not.</p>
<p>I thought I would seek the sound advice from this forum before contacting a pro consultant. There are so many facets to dealing with elder care that it can be overwhelming. Thanks in advance.</p>
<p>I am not an accountant, but unless they changed it, it is 10,000/person/year that can be gifted tax free. From what I know, you mother could in theory gift it to you and your spouse, we did something like this in taking over my dad’s house, in a sense he deeded part of the value in the house each year, at 20k/year…in theory that could apply to your kids as well, but I am less sure of the law on that, if they are adults she could do that I believe, but as your dependent they may frown on that… but I am pretty sure she could give up to 20k to you and your spouse as a gift tax free.</p>
<p>I’m not a tax professional, but as far as I know anyone can give a certain amount, currently $14,000 per year, without incurring any federal gift tax. So your mother could give $14,000 to each of her kids every year without worrying about the gift tax (and an additional $14,000 per year to their spouses if she wanted to). Even if you give more than $14,000 you may not owe gift tax - it goes against a lifetime exemption amount which I believe is currently over $5 million. So if your mother, for example gave each of her 3 kids $100,000 this year, the lifetime exemption would be reduced by $300,000 and her estate would owe federal estate taxes for any amount over this reduced exemption amount.</p>
<p>Beyond outright gifts, your mother can pay things like medical bills, tuition, etc. directly without going against any federal gift limitations. That is she could directly pay your medical bills, or your kids’ college tuition, without incurring any federal gift tax limits.</p>
<p>I would check carefully about liquidating an annuity. I’m not sure what that means, but I thought most annuities paid a set income (monthly or quarterly) for the life of the annuitant (your mother). I’m not sure how one liquidates that asset - you would have to talk with the issuer of the annuity to see what your options are.</p>
<p>The limit changed to $14K per person per year. There’s also lifetime gift up to $5M that you can give away tax free. I have no idea how it will be counted in medicaid look back.</p>
<p>Something to consider is that her circumstances may change and you may need to have her live in assisted living. The residents at my mother’s facility that are full pay are able to have their own rooms while the Medicaid recipients have to share. You may regret that she no longer has that money available to her.</p>
<p>Thank you all for your thoughtful and educated responses. The annuity can be liquidated rather easily (already checked with issuer) but as Knitkneelionmom suggests, this is a major decision…one we do not want to regret. Seems the element that makes elder care planning so incredibly difficult is that there are so many variables and what-ifs…at some point you have to make your best guess. Sort of like gambling :(</p>
<p>In my community the options for private pay folks who need nursing homes are far nicer than those who take Medicaid. Perhaps you should do some checking to at least get a prelimary idea of what your local options are, just in case.</p>
<p>As you said, all the what ifs make this hard, but I would want to make sure she has good options should she need them.</p>
<p>Perhaps it might be a good idea for this money to be put into an account for grand kids education or something and not touched until after she is qualified for Medicaid, situated where she need to be, or clearly won’t need it. Probably best to contact an attorney specializing in elder affairs to be guided. </p>
<p>If she’s getting a pension and social security, she may not qualify for Medicaid anyway and keeping the funds intact will allow it to be available for her use. If it gets distributed and spent, it will be tough to come up with funding for any future card she may benefit from.</p>
<p>I am nervous about reducing her income every month. On the other hand, since she never comes close to needing all the income she receives each month, she was afraid of it building up and then run the risk of medicaid getting it if she needs nursing care down the road. Her thought was if she liquidates now, she will know while she is still alive and of sound mind, that her kids will get a small chunk. If she lives long enough for the annuity value to go to zero, we would get nothing from the annuity. And that is pretty much what her estate has left as she invested a good sum into our house so that we could all live together comfortably. Or do we just keep the annuity and send ‘gift’ checks to my siblings each month? It’s all so confusing.</p>
<p>Thankfully she has very good medical insurance and a LTC plan that covers her for three years. Of course our wish is to have her live with us until the end…have LTC kick in to help before she ever needs to go into a home. But you have to plan for as many potential outcomes as possible. THAT’s the part where I get stuck.</p>
<p>If it were me, I think I’d accept whatever money she gives you and put it into an account that you could save, just so you’d have it if her need in the future exceed her resources and for whatever reason she doesn’t qualify for Medicare. I’m fond of hedging my bets and care for elderly can get pretty high, especially if they want to remain in your home and need 24/7 attendants, so they don’t fall, especially at night. If they money is disbursed and spent, you won’t have the funds to get the 24/7 care and she may have to move to a home sooner than you or she may want. </p>
<p>I have many friends caring for parents and grandparents now. Having funding for respite care, takeout food, adult day care makes a huge difference and allows them to all live together in stemless of relocating lived one needing care to a home. </p>
<p>Convince mom that the assets she’s acquired are meant to be spent so she has a good quality of life and can remain where she prefers, with the help that makes things work for you and her.</p>
<p>If she really insists, perhaps disbursing $5,000 per child and putting the rest in a separate account for potential future needs. Maybe that might make her happy?</p>
<p>My dad was in a nursing home on a Medicaid and it was OK. He needed to be in the secure wing and all the rooms looked the same to me, so I could not tell who was full-pay vs Medicaid. </p>
<p>I agree with the post about not saving it all in case you need it, as it will go very quickly. My 85yo mother lives like a pauper, entirely on her SSI, while she has a $100k pension rollover that she only takes the mandatory distributions from. If she needs nursing care, it, along with any proceeds from her modest ranch house will be gone within a few years.</p>
<p>Re: the annuity. The tax impact of liquidating it will depend on how it was funded (pre-tax or post-tax contributions) and if she elected to pay taxes on the build up in value. It’s possible the annuity manager can answer some of these questions.</p>
<p>I have qualms about deliberately impoverishing oneself (or ones parents) in order to qualify for Medicaid to pay for long-term care. Medicaid is designed for the truly indigent. If someone has the money to pay for long-term care insurance but deliberately decides to not purchase long-term care insurance but to give their money away instead, I’m not sure as a taxpayer that I want to pay for their long-term care if and when they need to go to a nursing home. Perhaps in that (somewhat hypothetical) instance their children to whom they gave away their money should be responsible for providing long-term care rather than the taxpayer.</p>
<p>Agree with dadx3. The good news is that her money will not “go to Medicaid.” If she needs nursing care, the money will go to the nursing home and staff that are taking care of her, and the state taxpayers will not be paying bills she could have paid had she not given away her money. </p>
<p>Also…not unique to this thread, but when did the word “gift” become an accepted verb in place of the word “give”? I still give gifts, I don’t gift anything, and don’t understand why anyone does.</p>
<p>You should be clear you understand the tax implications of liquidating the annuity, which is a separate issue from what your mother does with those proceeds.</p>
<p>The estate attorneys we know feel that impoverishing yourself or loved one to get Medicaid rarely works I. Their experience and most don’t want to help in this type of planning. We are doing our best to arrange our assets so we can pay for our care until we die. Our kids can get whatever isn’t required for our care, health and comfort.</p>
<p>Elder law attorney here. A big part of our job is to help clients analyze their assets and income and figure out likely scenarios for present and future care, all within the framework of our state’s Medicaid laws, federal and state tax law, estate & trust law, and for veterans/spouses, VA rules/regs. While everyone’s answers above raise good points, there is alot of values based and legally “just a little bit off” info which demonstrates the need to consult with someone in your individual state who helps families with this kind of planning for a living. The answer about what to do is going to be different for every family, and depends on a huge host of factors.</p>
<p>Re liquidation of an annuity, one point that has not been raised yet is the possibility of a surrender charge which can take a big bite unless (1) the annuity was purchased long enough ago to be outside the penalty period, and (2) there are health exceptions. For anyone considering surrender of an annuity or retirement account, now is a good time to talk to an elder law attorney and CPA because to the extent that there may be a tax hit, it can maybe be spread across two years (do part in 2013 and the rest in 2014). </p>
<p>Bottomline: please don’t try to figure this all out on your own. There is just too much at stake for all members of the family.</p>