<p>Correct me if I’m wrong. Your mom could become Medicaid eligible, but if you have the money, you could choose to be a private pay in the event she needed more care, and you wanted that option. I’m sure any skilled care facility would prefer your private pay dollars.</p>
<p>I would suggest what someone upstream suggested. Close out the annuity (as long as you really feel this is the better financial option for your MOM) but put the money into a dedicated savings. That way, if something does happen within the look back period, you will have the funds. OR you can then choose to use the funds for your moms care if needed.</p>
<p>The other thing she could do is use that annuity disbursement monthly to give a gift to each of her chosen family members. It might make her feel good to be able to do this.</p>
<p>She’s recently invested her money in your house, and you are considering sending either monthly proceeds from the annuity, or part of the cash-out value to siblings, and you anticipate that she might need nursing care that you might want Medicaid to cover?
Yikes.
Yes, MJSMOM has hit the nail on the head. You definitely need an elder law attorney.</p>
<p>I know nothing about annuities, but after my dad died, my mother’s lawyer suggested she begin gifting more money to my siblings and me and the grandchildren to avoid inheritance taxes down the road. She was worried about the tax implications for us, but we learned that she can give away (then) up to five million without anyone paying tax. (She doesn’t have five million, so we were good on that.) The only hitch is that the government needs to keep track, so she has to file a Gift Tax return with her taxes that states how much she’s given to each family member over the year. Anything over the $10,000 (or $11,000?) allowed goes against the five million exemption. Should she win the lottery and want to give it to us, we’ll have to pay taxes, but other than that, no one pays taxes on the gift – not her, not us. And we save down the road in inheritance tax, because there will be less to inherit. This was a revelation to us as my poor dad always wanted to give more to the kids, but felt hamstrung by that $10,000 a year limit.</p>
<p>1down - Some elderly, like my sainted Mom, decline once they pass age 80 or so. Judgment can become faulty.</p>
<p>So before heading down some path “because Mom wants it that way” you might ask this question: If she’s fully capable of making decisions on her own, why are you acting as POA?</p>
<p>PS, I commend you for taking care of your Mom. It’s a very generous thing to do.</p>
That made no sense to me. If her estate is way less than 5 million, then there would be no inheritance tax whether she gifted it to you before death, or you inherited it. The only reason to gift while still alive is to reduce the estate to below the value that would be subject to tax.</p>
<p>We had some of our great aunts/uncles who used a trust to divest themselves of assets in order to get medicaid. It worked for them. In order to do this you must see a lawyer who is qualified in this area. </p>
<p>My inlaws and my own mother did not do this. They pay for/paid for care that they needed/wanted in their own homes, and did not/do not want nursing home care. My own mother said she would rather die than go to a nursing home. My dad died young, so that was never an issue.</p>
<p>You do need to know how the gifts would be treated under any look back period, so find an attorney.</p>
There are other reasons. Also to give the money to our kids when it will help them in their lives. If we wait until we die and live full lives our kids will inherit the money when they are 55-65 years old. They will have paid for grad schools, bought houses, raised kids, paid for college for their kids, paid for weddings … all while we are sitting on our money … and then we give them the money AFTER they have paid all their major life expenses. Personally, I’m planning on flipping that expectation … the money is going to the kids so I’m going to give them some when it can have a meaningful impact on their lives. The one catch is I have to confidence they will help Mom3ToGo and/or I out if we hit a bad end-of-life situation and we run out of money.</p>
<p>^I bet it was before the law changed to increase the limit to $5M. The annual limit also increased from $10K about 10 years ago. Since you mention $10K as annual limit, I am guessing this happened some time ago.</p>
<p>You’re right. The estate wouldn’t incur Federal taxes since it’s under 5 million. But it would incur state estate taxes in my mother’s state. That was one small reason for the gifting. The other reason is that my mother wanted to give more money to kids and grandkids at that time, but was worried about going over the $10,000 yr. limit. I just posted the information for anyone who did want to gift earlier – so that they’d know that no tax would need to be paid by either giver or recipient unless they went over the federal lifetime exemption limit. But the giver does have to file a Gift Tax return (they won’t owe anything with that return).</p>
The tax angle is true also … annual gifting (under the limit) allows the money to move early with no tax filling issues at all until you die.</p>
<p>PS - between things like trusts, gifting, life insurance as a tax avoidance vehicle, special tax treatment of certain kinds of investment it seems anyone who ends up with substantial federal inheritance tax either did not get or refused to follow estate planning advice … the inheritance taxes can be avoided if someone wants to avoid them. The whole political argument about inheritance taxes is a political re herring.</p>
<p>My husband has been in 2 nursing homes over the past 2 years. The first one accepts Medicaid, but H was private pay. His (lack of) care was equal to the (lack of) care the Medicaid patients received. The aides, nurses and other staff have no idea who is on Medicaid and who is private pay. They apparently thought their entire job was to keep people from dying - but not to care about quality of life. It was the best place I could find at the time, and it was marginally less disgusting than other homes in the area.</p>
<p>After being on a waiting list for 18 months, I was able to move him to a home that is solely private pay. The level of care, and caring, is so much better. He is very well taken-care of, and the staff is proactive in getting him to medical specialists as needed. Even the kitchen staff will adjust menus to include patients’ favorites.</p>
<p>Lesson learned: If you even think you or a loved one will need a nursing home and you’re prepared to private pay, do some homework now to find what’s available in your area, and get on a waiting list ASAP. The “good” places have waiting lists.</p>
<p>Thank you so much to everyone who has offered kind support and advice. To answer someone’s question above, I was appointed POA some years ago but only recently had to use it when she took a bad fall and was hospitalized for an extended time. I knew the time was coming, but that event launched me right into it. She is alert (although very forgetful) but cannot get around very well physically and is pretty much house bound.</p>
<p>As most of you suggest, we’ve decided not to do anything with the annuity until we consult with professionals about our particular situation. Even then I am leaning towards leaving the annuity alone so that we have more options. This particular annuity pays regular monthly payments until her death. I did find out that, if liquidated, she would not have to pay taxes on it and there would only be a small admin fee to close it.</p>
<p>My parents worked very hard for what little they saved and so I take the management of their modest estate very seriously. With one still in college and this now placed squarely in my lap, I have my share of sleepless nights! Bottom line is we want the best care possible for her (which is why she is living with us) and hope she has many more years left.</p>
<p>Here is something I was not aware of. The initial basis in stock you inherit is based on the fair market value of the stock on the relevant valuation date, which is normally on the day of death. If the deceased bought the stock at 10, on the valuation date it is worth 20, your initial basis will be 20 not 10. When you do sell the stock someday at 25, you will only need to pay capital gain of 5, not 15. This is also the case for real estate. If you inherit your parents’ house, the base will be the market value of the house when your parents passed away, not what they bought the house at.</p>
<p>Conversely, any appreciated asset given to another carries with it the cost basis of the original purchaser. So for that stock bought at $10 and sold at $25, the capital gain would be $15 per share for stock acquired through gift rather than the $5 per share for stock acquired through bequest, as in the above example.</p>
<p>^^ Yes and many people make the mistake of gifting appreciated property to their children. Then when the child sells the stock or the house, they pay a lot of taxes on it, when they would have saved a ton by inheriting it instead. All in the name of transferring assets to their children so medicaid will pay for their nursing home. Or to avoid paying inheritance taxes when none would have been due anyway.</p>
<p>^ that’s why it’s almost always better to inherit appreciated assets rather than receive them as gifts. Gifts are at the giver’s cost basis, while inherited assets have their cost basis stepped up to that of the date of death. </p>
<p>To the OP; have you done various what-if scenarios on the annuity with assumptions as to your mother’s life expectancy, to see if the cash-in value would be greater or less than the income stream? For example, if your mother lives another 10 years, the income stream would be X, or (monthly income) * 10 * 12, while the cash-in value now would be $Y. Is X > Y? What if your mother lives 5 years? 15?</p>
<p>Gifted assets technically have bifurcated basis, with basis for calculating gain the donor’s basis, and basis for calculating loss the lower of donor’s basis or FMV at the date of gift. Giving someone a loss asset ensures that no one will ever get the benefit of that loss.</p>
<p>Well, it really isn’t, but if anyone really believed that, then we should just do away with it. </p>
<p>For anyone who wins a lottery, or possibly actually earns enough to save more than 5 million in their lifetime, there is in fact no way to avoid an inheritance (estate) tax other than to give it all to charity. The idea that there is some way around this is incorrect. I looked into it very carefully back when the exemption limit was set to revert to $1MM, and there literally is no way to get around it. There are always vague descriptions of trusts, and other machinations that supposedly allow one to not pay it, but I’ve looked at every legal device available and they don’t exist.</p>
<p>What is the case is that there are plenty of ways to screw up and pay more than you need to under the law, but avoiding the tax altogether isn’t legally possible if you are over the exemption threshold.</p>