THE SITUATION:

I have an elderly father who turns 88 in November. While "comfortable" he is not "rich" by todays standards. He currently lives on his own and unassisted in a 2 bedroom apartment after selling his house last year. His wife passed away in 2014 and my brother (in his 60's) and I (in my 50's) are his only family.

Dad has Military and State retirement, along with Social Security. The combined amount more than covers his monthly expenses and he puts the remaining amount in savings.

Healthcare is handled by Tri-Care and Medicare.

Dad has made it well known that my brother and I will evenly split his "estate" when he passes. Other than personal possessions, this is a savings account. No retirement account, stocks or bonds, real property, etc. he has his three monthly retirement checks that go into his checking account and when his checking account gets to a certain level, he moves some of it to his savings account.

Lots of argument could be had on better investment strategies/options etc. Please, none of that is at issue here. He has been comfortable in his retirement, lost a bit in the early 2000's and made the decision that low risk security was a more important to him than growing the balance.


Four years ago Dad started giving us pretty substantial (for me) cash gifts at Christmas explaining he would like us to enjoy the money now while he can see it. Up to now, these amounts have been under the Gift tax allowable amount for the IRS so Dad doesn't have to pay tax to give it away and since it is not income, we don't have to pay tax receiving it.

All the necessary papers are drawn up, will, prepaid funeral plan, POA, along with medical directives, etc.

He is currently in good health, no major chronic conditions. Mentally sharp but becoming physically frail. My brother and I believe he is past the point where he should be living alone and he agrees.

I am in the better situation to take him than my brother. We have the space, my wife doesn't work, etc. Dad is going to pay for some necessary renovations on my house (nothing major - stair lift and bathroom grab rails).

Initially, I was expecting him to just cover his share of the costs such as food, utilities, etc. While I wouldn't charge him a nickel, he is very proud and refuses to "take" anything from me and such. He has decided he will pay what his current apartment rent is as an "all-inclusive" amount for "room and board". I explained it was too much, way more then necessary, but he is adamant and that is an argument I would never win.

In his mind he is getting a deal because he is now "saving" money by no longer having to pay for food, utilities, etc.


With him moving in soon he is starting to think more about the time he has left and not wanting to ever burden my brother or I, was wanting to plan for the possibility of a stroke or other condition making him unable to live with us and have to go to a nursing home.

Dad is very "anti-tax" and believes he has paid enough money to the government to mismanage and wishes to not pay a nickel more than he has to. Can't say that I disagree.


For that reason he has decided he wants to liquidate his savings and gift it to my brother and I now so, in the event of him having to move to a care facility, it is not "wasted" (his word) on paying for his care. Worst case scenario for him is his money runs out and he relies on Medicaid to cover facility costs in excess of his retirement payments and he wasn't able to give any of it to us.


We all agree we want to do this legally and as simply as possible while minimizing any tax burden.


OK, long explanation but I wanted to make sure folks understood the situation so they would know specifics if able to offer advice or guidance....



MY UNDERSTANDINGS:

1. While the IRS allows an exemption from Gift taxes for gifts up to $15,000 a year per recipient, he can gift more than that and still not have to pay any Gift tax. He simply needs to report the excess gift amount and apply it (or whatever the appropriate term is) to the lifetime max of $11.6M that is exempt from Gift or Estate taxes with the new tax bill that was passed. No way he would ever come close to hitting that mark, so no tax burden other than reporting.

2. My brother and I as the recipients, do not have any tax burden on receiving the gift. It is not considered income so our tax filings are unaffected.

3. We are in Washington State, Medicaid has no income cap for eligibility, but they limit assets to $2000. All assets/income must go to care costs first (short of a "personal needs" monthly stipend) and then Medicaid covers the remaining amount. For our area, in todays dollars, the average Nursing home is running about $250/day or $7600/mo.

4. If Dad gifts us his savings and clears out the account, then has to go into a Nursing home, Medicaid will look at the previous 60 months to see what assets were given away and then determine a "penalty period" before they will provide any benefits.

5. Paying reasonable room/board to family member for housing is not considered a "gift" for Medicaid and would not cause any penalty. He could even pay more if structured as "Home Care", but then that amount would be considered "income" for me and need to be reported and pay taxes on.



THE PLAN:

Dad wants to give us the money now. He wants to minimize any tax burden on him or us and he wants to (legally) protect as much of it as possible from being required to pay for his care before Medicaid benefits are applied.


Best Case Scenario - Dad gifts us our "inheritance" while he is still with us and sometime down the road, while still living with me, he passes peacefully in his sleep (as he repeatedly expresses is his preference).

No worries, he was able to do as he wished and "did it His way".


Worst Case Scenario - Dad gifts us our "inheritance" while he is still with us then two years from now has to go to a Nursing home.

Since he gave us the money, Medicaid applies a penalty and it may be 2-3 years before Medicaid will cover any costs. We would then need to come up with the difference between his monthly income and the Nursing home bill (potentially $3000-$5000/mo).

If we have squandered his gift or put our inheritance into a retirement account, it may not be readily available to cover the cost or cause a financial or tax burden on us by withdrawing it to pay the Nursing home bill.


COMPROMISE?:

After much internet research, here is what seems to be our best course of action and what I am asking for advice and input on...

Split the savings three ways, 1/3 to me, another 1/3 to my brother and the remaining 1/3 in a separate joint account (trust?) in me and my brother's name to be used for nursing care should that become necessary. This would liquidate all his assets and start the Medicaid penalty clock.

The way the Medicaid penalty period is determined in WA state (amount/9038= months penalty) the retained 1/3 should provide for the cost over his monthly retirement income for the duration of the penalty period.


Example: (Not actual figures, but round numbers to explain idea)


$330,000 in savings.
$110,000 gifted to each of the sons ($210,000 total)
$110,000 gifted to the trust

Shortly after gifting us, should Dad unexpectedly have to go to a Nursing facility, Medicare takes the $330,000 gift into account and applies penalty period of 37 months (330000/9038=36.5) before Medicaid will pay benefits.

Essentially, this means Dad will likely never qualify as the average stay in nursing facilities before death is 13 months and 53% of patients/residents die within 6 months.

If Dad does survive the penalty period, the $110,000 in the joint/trust account, at $3000/mo (Nursing home costs in addition to his retirement income) would provide for approx 36.6 months, covering the penalty period.



The three off us have looked at this from several directions and think it is the way to go. We DO plan on checking with a senior citizen financial consultant type person before doing anything, but to minimize time and cost of that process we would like to already have a plan to start with instead of working from scratch.


Thoughts? Any glaring or obvious errors in my understandings or considerations?

Good for you and Dad for thinking about this in advance. Here are my thoughts, as I researched it a while ago also.

1. Regarding the lookback and penalty: Worst case is that you and your brother would have to pay all he gave you to the nursing home, no more than that. So, in my view, not a factor. The only loss is the annual gifts that you won't receive. In other words, if Dad goes into a nursing home before 5 years, either Dad, or you and brother, are going to pay $5k a month until the $330k is gone.

2. If Dad is basically healthy I wouldn't be thinking of a nursing home and I wouldn't plan on a stroke or something catastrophic happening. But if it does happen, he can still stay with you and receive in-home care. I know Medicaid/Medicare covers that to some extent but not sure about how the lookback factors into that.

3. I vote for him moving in with you and gifting you 2 the money now, and let him pay you the room and board. The sooner you do it the better. Just don't spend the money for 5 years.

4. In lieu of Medicaid/nursing home (should it come to that), look into VA care and Soldiers & Airmens homes, etc. But, I believe they also have income limits.

5. I believe the penalty is the total amount divided by avg. nursing home costs per month. $330k divided by $5k = 66 months. So, if Dad dies before 66 months in the nursing home, you are ahead.

6. I think money put in trusts during the lookback period is still counted.

quote:

Originally posted by mikeyspizza:
Good for you and Dad for thinking about this in advance. Here are my thoughts, as I researched it a while ago also.

...
2. If Dad is basically healthy I wouldn't be thinking of a nursing home...

3. I vote for him moving in with you and gifting you 2 the money now, and let him pay you the room and board. The sooner you do it the better. Just don't spend the money for 5 years.

Not looking at Nursing home at all at this point, he is definitely moving in with me next month when his apt lease expires. This more of a "contingency" should something happen that we can't handle in our home setting.

They can't force you to repay any gifts, all they can do is deny/delay any coverage. He wants us to "enjoy it while he can watch". We are thinking no need to squirrel away any more than conservatively needed to cover expenses should the unexpected occur.

quote:

Originally posted by mikeyspizza:

...

4. In lieu of Medicaid/nursing home (should it come to that), look into VA care and Soldiers & Airmens homes, etc. But, I believe they also have income limits.

None local to us and not much difference in cost. Should he have to go to a nursing home, I want it to be as close as possible and not any distance away.

quote:

Originally posted by mikeyspizza:

...

5. I believe the penalty is the total amount divided by avg. nursing home costs per month. $330k divided by $5k = 66 months. So, if Dad dies before 66 months in the nursing home, you are ahead.

6. I think money put in trusts during the lookback period is still counted.

My understanding is that since Medicaid is state run, different states figure it differently. WA state DSHS Medicaid website says it is calculated as the gifted amount divided by 9038, with the product being the number of months "penalty".

Yes the trust would still be considered as being gifted, the point was that it would be the protected "back up" plan that would be restricted in it's use. That way we could do as we wish with our individual gifts at the time instead of holding on to everything for five years.

Initially he was thinking to just keep the back up in his account. Problem with that though is that you can't have apply for Medicaid until you meet the asset limitation. So if it stayed in his name, he would have to liquidate before applying and that is when the loopback period would start for that amount.

Putting the back up amount in a trust or some sort of restricted joint account in our names gets all assets gone at the same time and starts the clock going.


Oh, one other thing...

This would not completely wipe out his assets and leave him with no cushion should there be any unexpected or catastrophic event. His monthly retirement income is roughly 3 times what he will be paying room/board. So his savings will immediately start growing again and continue. He would then "re-zero" once a year at Christmas to bring it back down.

quote:

WA state DSHS Medicaid website says it is calculated as the gifted amount divided by 9038, with the product being the number of months "penalty".

Yes, I found that now.

quote:

Yes the trust would still be considered as being gifted, the point was that it would be the protected "back up" plan that would be restricted in it's use. That way we could do as we wish with our individual gifts at the time instead of holding on to everything for five years.

All $330k will be counted for the penalty. The $110k in a trust funds 12-13 months of penalty payments before you have to start coming up with the rest. I don't know the cost of setting up a trust or whether it's worth the hassle.

I think I would just go with gifting $165k to each now. I think I'd take my $165K and put half, most, or all into 1-2 year CD's and keep rolling them over. Any $ not in the CDs I would put in a total US Stock Market Index Fund like Vanguard VTI. For the stock market, I would wait until the market comes down/corrects before putting the $ in.

quote:

Originally posted by BenderRodriguez:
I just noticed your idea about using joint accounts to move the assets into your name and start the clock...

Add in the complications from my point about "re-zeroing" and resetting the look back, I believe it would cause more problems than the desired solution. I could be wrong but definitely clear it through your attorney.

The joint account would be in my and my brothers name, dad wouldn’t be on it.

With $2000-$3000 a month income in excess of his current expenses, he is back to saving $24000-$36000 a year.

The look back period is 60 months. If he zeros out savings now, the amount gifted is irrelevant 5 years from now in 2023. Technically, the clock “started” when he began giving us gifts in 2014. With a rolling 60 month period, the 2014 gift is off the board in 2019, last years gift is of the board in 2022, etc.

In 2023 with the “big one” off the board, he would still be looking at $100000 or more from that $24-36K savings from 2019, 2020, 2021, and 2022.

Medicaid would not come after any money, they simply would not provide any coverage for whatever the penalty period of time ended up being based on the gift calculations. I believe Medicaid is a moot point because the penalty period would be so long, it would surpass any time he has left, no matter how the liquidation was structured. Medicaid really wasn’t meant for folks who are in a position to cover their own expenses anyway, as he is.


What we really need to plan for is to be able to cover the monthly cost of a nursing home in excess of his retirement income for “X” months. We just need to reach agreement on a conservative value for “X”. Google says average nursing home stay is 13 months for those who pass away while in the facility. Numbers gets even bleaker when you break it down, with 53% surviving less than 5 months and 65% surviving less than 6 months.

$110000 would cover 24 to 36 months and each additional month of “new” savings after zeroing out his current savings would cover close to another month if it was also gifted to the joint account.


I don’t wish to sound morbid, but he is nearly 88, smoking since 16 (as much as 3 packs a day, now just 2-3 cigarettes a day). He was hospitalized earlier this year after collapsing with pneumonia. He came home on oxygen with COPD, arterial stenosis, and emphysema concerns. He has since been taken off the oxygen, but uses a cane or walker at all times now where that was not the case last year.

I see a marked decrease in his stamina and energy level over the past year as well, much more so than in the previous couple of years. I sincerely hope I am wrong, but I am afraid the inevitable may be sooner than we wish to believe.


This is only being planned and discussed because the three of us (Dad, brother, and me) are all very “practical” and none have ever been accused of having much in the way of emotions. He is adamant to have things worked out in advance and goal one is to not be a burden to us. My natural reaction is to say he isn’t and don’t worry about it. He is as hard headed of a bulldog as his sons turned to be though, so that doesn’t fly.

Thankfully no friction or rivalry exists between my brother and I, so there will be no shit-show like there was when my mother died without a will. My sister (now deceased) made what started as a fiasco into a full blown freak show with her antics and court processes.


I am almost ashamed to admit that last year he was my voluntary “Gardner” working the flower beds with my wife and mowing my lawn. He loves gardening and since recovering from the pneumonia, still helps with the flowers. Works while sitting on a stool now though.

He doesn’t “get” to mow the lawn anymore even though he believes he still can “No different than using my walker” according to him...

I am looking forward to him moving in. Although I try not to think about it, knowing there is a finite amount of time left, I find myself wanting to spend as much of it with him as I can.

I had a similar situation with my dad.

Looks like you have most everything taken care of. I didn't hear if you or your brother is a joint owner of all his accounts. It makes it easier as the bank can talk to you directly should the need arise.

Capture the money he's giving you as as "expense contribution" and not income. It's just a head set. If you see it as income, then you should be paying taxes on it.

Confirm with a social worker how many months back does Medicaid look back on withdrawals when it's time to qualify. One other thing your dad can do is splurge in his old age and buy big ticket items for his enjoyment.

Just my feeling but chances are your dad will live to his late 90s. So the 60 month look back rule, if that is what it is, won't apply.

My wife's mother stayed with us and my wife took care of her. I wish you well.

I have literally JUST did this with my aging mother in NJ (each state is different somewhat).

The key to to "outrun" the look back period as you have surmised. I solved this by (luckily) being a joint owner on my mother's checking account for the past 50 years-never knew it until my father passed and I had to do clean up.

What I did was:
- collect all the non-IRA money into her checking account
- With my brothers's permission, I then invested in various CD, mutual funds and such leaving $100 grand or so in cash and -- IN MY NAME ONLY, BUT WITH MY BROTHER, COUSIN AND MY WIFE AS "TRANSFER ON DEATH" EQUAL BENEFICIARIES.
- Got Financial POA for all her accounts, including IRA's
- I personally paid all my mom's bills for rent, HSC, utilities and such, then when the time came all her bills for the nursing home (heavy lift 10K a month!!!) (Firstly from her IRA accounts)
- At the 5 year lookback timeframe passed from the LAST money move, got her on Medicaid as her assets in her name was only $1000 left as the nursing home spend down legitimately ate up the balance.
- I am now in process of dispersing the balance of the assets to my brother (and cousin as that is my mom's wish) at a rate of $60K a year. I started 1 year before Medicaid as I calculated enough would be left to cover.
- I kept a spreadsheet that tracked everything as I also was paid a small sum to manage her account INCLUDING all early dispersal and equally calculated an exact 1/3 split.

So far all is working out according to plan and next year I should be able to settle up everything. No extra tax burdens, except when the investments made money and we had to pay capital gains which also came out of what I considered my mother's account.

I could share that spreadsheet if you want. Email in my profile.

I suggested he sell his 2003 Mazda pickup and buy a nice new SUV, but he won’t do it. It is in good condition, has under 80,000 miles on it and he has only driven 2600 miles in the last year and doesn’t think he will be driving much longer.

That was kinda my thinking, since me or my wife will be driving him around we could do it in a nice new SUV

His idea of big ticket item is the 55” TV he bought two years ago and the cable sports package.

Kidding aside, he is very practical. Grew up in the aftermath of the depression. His Dad was raised in a sod house in Nebraska. Not one to splurge which has a lot to do with the “problem” he finds himself in.


After retiring he and his wife bought an RV and travelled around for a number of years before they got tired of it or had just gone everywhere they wanted to go.


He has already lived longer than his Mom or Dad, he won’t admit it but I am pretty sure depression may have been starting to be an issue. Bored, lonely, lots of time by himself. My brother and I each see him 2—3 times a week, but mostly just for a meal or to do a few errands.

He is only 10 miles away so easy to visit but he is definitely a different disposition when he is at our house for a visit. He interacts with my dogs (he had to put his down early last year), is very chatty with my wife and just seems to be more animated than he is at his apartment.

Again, I would never ask him to pay anything. Only expected him to pay his actual food/utility costs as I know he would demand to pay his share. When he told me he was going to pay what he pays currently in rent, I tried to explain it was too much and not necessary.

It isn’t “rent” and it is over and above “expense contribution”, it is just more monetary gifts as far as I am concerned.

Let him pay it, just put it into a separate account for the future (less actual expenses). He would be happy, finances would be straight.

No problem as far as I see.

I just wanted to mention something...

Inheritance and money do weird things to families.

Make sure you and your brother talk everything out, perhaps visit a lawyer together with your dad and get everything all sorted out with regards to rent and inheritance.

A very close friend of mine had his whole inheritance squandered away in legal fees because his siblings accused him of skimming money off his mom's accounts while she was living with him. He was managing all of her rental properties and depositing all the money into her account, and taking money out to pay for her medical care and rent expenses...but the siblings thought there should have been more money and spent tons of money (from the estate) for forensic accounting and tons of hearings--and my buddy spent more money defending it than his share of the inheritance. The worse of it is that now none of the family talks to each other.