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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10163
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My mother is 68 years old, disabled/ill, and has been

Customer Question

My mother is 68 years old, disabled/ill, and has been receiving federal benefits (with medicare/medicaid). She will sell her house soon and will have approx 260,000. She wants me to be in charge of her care and finances. Do I need to create a trust for that money, or can she just gift it to me? We already know that she will lose her benefits for a while - would you know how long that would be?
Thank you
L
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Specifically I want to know how much she or I will need to pay to the government in the form of taxes if she does gift it to me. (if you can comment on whether she will need to pay back any benefits - that would be great)
Expert:  Lane replied 1 year ago.

Hi,

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Lets deal with the easy part first. Gift taxes ( A TRANSFER tax - this is not INCOME tax) are paid by the giver.

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And there's a $5,430,000 lifetime exemption on gifts ... so if your mother has not gifted more than 5,430,000 to others in her lifetime, there there will be no gift tax here ... She WILL need to complete an IRS form 709 (Gift tax form), which is used to track gifts over the 14,000 annual exclusion AGAINST that lifetime exclusion ... BUT there will be no gift tax due.

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Also, gifts and inheritances are specifically excluded from INCOME tax to the receiver (IRC §102)

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Now on the Medicaid aspect of this ...

Expert:  Lane replied 1 year ago.

As it sounds like you already know, transferring a house to children (or someone else) may lead to a Medicaid penalty period, which would make you ineligible for Medicaid for a period of time.

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But under FEDERAL medicaid law (regardless of the state) one can transfer their home to the following individuals without incurring a transfer penalty:

  • Your spouse
  • A child who is under age 21 or who is blind or disabled
  • Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
  • A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Expert:  Lane replied 1 year ago.

And simply selling the home for fair market value, makes one ineligible for Medicaid and you become eligible again on after transferring the proceeds of the sale to the nursing home bills.

Expert:  Lane replied 1 year ago.

Medicaid is federal law, but the states are left to administer it, so there are some differences from state to state.

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Wisconsin rules

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In Wisconsin, the home is exempt if it is the primary residence of the individual and if the individual evidences an intent to return to the home.

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A home is also exempt if a spouse or minor or disabled child resides in the home. The homestead exemption includes the residence and residential lot as well as all outbuildings and contiguous acreage.

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Expert:  Lane replied 1 year ago.

You really need to sit down with an elder care law attorney LICENSED IN WISCONSIN ... because this transfer will happen withing 5 years before medicaid eligibility (DURING medicaid eligibility, in fact), you need to be very careful here.

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Keeping the home in her name and making a statement that she intends to return to the home, is one way, under WI law, that the value of that asset can be kept as exempt for Medicaid purposes ...

Expert:  Lane replied 1 year ago.

Homes can still be subject to a Medicaid Lien if LONG TERM CARE costs are paid for by medicaid

Expert:  Lane replied 1 year ago.

Finally ...

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I would talk to a WISCONSIN attorney about a special needs trust. Transfers to certain special needs trusts in WI are not considered a divestment creating an ineligibility period ...

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Also, if you have lived in the home yourself for 2 years and been a caregiver for your mother THIS is not considered a divestment

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Given your situation, the Special Needs trust may be the best way to stretch the assets whil still allowing for Medicaid ... It must be IRRevocable, it can only be used by SUPPLEMENTING Medicaid, the death beneficiary must be the state (medicaid), and should be drafted with care byb an attorney with experience with these documents .

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Let me know what questions you have from here

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Lane

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Expert:  Lane replied 1 year ago.

By the way, here's an overview of Special Needs trusts from WisPact:

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Wisconsin Pooled & Community Trusts, Inc. (WisPACT) is a private nonprofit organization that administers pooled and community Special Needs Trusts for people with disabilities. Based in Madison, WisPACT manages the Special Needs Trusts for more than 2,000 people throughout the state of Wisconsin.

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http://www.wispact.org/content/special-needs-trust

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I hope this has helped

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Lane

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If this HAS helped, and you don’t have additional questions on this, your positive rating … (by clicking or touching the stars or smileys on your screen) … would be appreciated!That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Customer: replied 1 year ago.
Thank you for your reply. I just want to clarify - my mother's house is sold and therefore we can't say that she intends to return to the house to keep it exempt. She has had some in home health care services (for a very short time - 3 mos) but other than that nothing else.
I just want to be sure as well: if she gifts me her house money, she will not pay any gift tax (no she hasn't gifted before) and I will also NOT have to pay any income tax. Is that correct??
Finally, I know I need to talk to an elder lawyer, but can a lien (for the in home health care) be placed on the money she gifts me? or will that be taken right out of the home sale?Thanks
Expert:  Lane replied 1 year ago.

OIC - you said "She will sell her house soon..."

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Again, no gift tax at all unless she has hit the lifetime gift exclusion amount of $5,430,000

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And yes, no income tax either

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It's not taken right out of the home sale in any way ,... BUT unless you can get it into a special needs trust, it IS considered AVAILABLE for medicaid eligibility purposes. And if she gifts to YOU it's a divestiture (automatically extends the time before she would have medicaid eligibility)

Expert:  Lane replied 1 year ago.

Hi did you see the answer to your follow-up?

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Let me know if you still have questions

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If not, I'd appreciate a positive rating (by clicking the stars or smiley faces on your screen) ... that's the only way I'll be credited for the work here.

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Thanks,

lane

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