In Law Wants To Give Away Money So I Have Questions

Listedguru | Jul 25, 2023 | 63 posts since 2022

My mother in law is almost 80 and she's been widowed almost a year now. She's in decent health and good shape financially with pensions, paid off home and car. She has a big chunk of money laying around and I had suggested to hear to put it to work in a CD so she can earn a decent return even though she doesn't need that money to live off.

Now all of a sudden she's worried about getting sick and having to go into a nursing home someday and having to spend all her money and not being able to pass on money to her (3) kids (my wife and her two brothers. Let's say for giggles she wanted to give each of her (3) kids $50K now while she's healthy, etc. I assume it's her right to do that and she can do that without a tax hit correct? From what I read it just counts against her lifetime gift exemption.

Not saying this is the route she should go but if she did is there anyway anyone can come after her kids for that money say if she got sick a few years down the road and didn't have enough money to cover her care at that time?

So basically she's scared she's going to get sick at some point and blow through all her money on care but she's also scared that if she gives her kids some money now while she's healthy that someone can take that money back if she were to get sick down the road and not be able to cover her bills.

Any thoughts on the issue please fire away.

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Answers

choice1 | Jul 25, 2023 | 370 posts since 2023

Too many issues for a “simple” reply….welcome to world of Medicaid or Medi-Cal planning as the latter is called in California for long term care. Need to talk to an elder care specialist/attorney for the big picture

On your specific…gifts to kids…gift tax return required and normally no gift taxes. Once transferred those gifts are or can be subject to their creditors of same AND depending on state could be subject to clawback to qualify for state provided nursing home care

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happyharold4 | Jul 25, 2023 | 388 posts since 2022

Seems like it's time for the mom and her 3 children to all get together and make a plan pretty soon that they and she are comfortable with and then find out the legal ramifications in regard the IRS and the state she resides in. When it comes to stuff like this greed and mistrust can be a stumbling block. A really good, pretty much bullet proof way for her is to have a Living Trust with a reliable Trustee---She will be more comfortable and family members will know exactly where they stand. Whatever you do, don't go on the cheap with this---Pay top dollar and get a very reputable firm.

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TheRealMAGA | Jul 25, 2023 | 23 posts since 2023

Irrevocable Trust asap. After 5 years Medicaid cannot claw back on house or money. Start giving money away while still healthy which I think is $16k per year to as people as you want without having to file a gift tax return. I think it’s 12 million lifetime on that. Create a life estate 5 years before you need the care and after that home will be exempt from Medicare recovery. And believe it or not , but an annuity in some states don’t count payout’s against Medicare eligibility. Get a good lawyer for these.

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Listedguru | Jul 26, 2023 | 63 posts since 2022

OP here. I think the problem with the 5 year law back is that no one can predict when they may get sick and need expensive long term care for instance. My suggestion to my MIL is to have her put the money into a CD (probably a 5 year) for now and then reassess her situation at the end of the 5 year term. She would still have access to other money during that 5 year cd term and her monthly expenses would all be covered as long as she remains healthy and doesn't need any expensive LT care for instance. Plus that 5 year CD will kick out a decent chuck of change on a monthly basis.

If she were to give away that money to her kids instead of putting it into a cd what would happen if she got sick in say a year and had to burn through her money and file for Medicaid - in this instance I guess the state (Michigan) could claw back any money they paid for her care under the 5 year claw back deal. Not sure what the best option here is really. No one wants to get sick and requrie regular expensive LT care and no one can predict whether or not that ever happens to them.

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TheRealMAGA | Jul 26, 2023 | 23 posts since 2023

Listedguru, you have to establish the 5 year clock now. Create the life estate. Why, ‘A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it.’. You have to do this 5 years before you need long term care otherwise Medicaid can come after the house. If your state does not count annuity payouts against Medicaid then that would be beneficial to her and the estate. All of this then has to be put in an irrevocable trust to become valid, but she has to do it 5 years before she needs long term care. So the sooner you start the better off she will be. Otherwise you’re not going to get protection from claw backs. Plus, a trust flys under the radar because you don’t have to go to probate court which will be public documents. You’re not thinking things through which is why she needs a good estate lawyer.

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Listedguru | Jul 26, 2023 | 63 posts since 2022

Going through some estate planning documents for my mother in law and it does look she has a life estate. There is a quit claim deed for the current property she lives in that has verbage in it about excepting and reserving a life estate for and during their lifetime to do with as they please and goes on to say upon their death if not previously disposed of then the property goes to and it names their (3) kids. It's signed by an attorney and both her mom and dad (her dad is now deceased) and it's also signed by a notary public and stamped with the notary seal as well.

It's dated July 3rd, 2019 so I would assume that would be the start of the 5 year clock date and this document would protect the residence should she ever have to go on Medicaid...

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