Question About Bankruptcy and $$ in the Bank

[mefordis]

Unless that money was over 1 million $, there is no gift tax owed.

What is a gift?
For starters, the IRS defines a gift as “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”

In other words, if you give someone something of value and don’t receive an equal value in return, you’ve given them a gift. Pretty simple, right?

Tax treatment of gifts
Gifts that you receive are not considered income, and you don’t report them on your tax return no matter how large they are. That being said, you can’t simply dodge taxes by calling your income a gift. If, for example, you receive a “gift” in return for services rendered, it’s not a gift.

So what’s all this talk about gift taxes? Well… The gift tax actually applies to the donor, not the recipient. The whole point of this tax is to prevent individuals from transfer their estate to others before their death, thereby avoiding the estate tax.

Exclusions from the gift tax
Before we go any further, it’s important to recognize that there are several categories of gifts that are not subject to the gift tax. These include charitable contributions, gifts to a spouse, gifts to a political organization, and tuition or medical payments made on behalf of someone else.

In addition to the above, there is an annual gift tax exclusion that currently stands at $13k/recipient. In other words, you’re allowed to give away up to $13k worth of gifts per recipient to as many recipients as you wish in a given year without any tax ramifications. Note that this limit is effectively doubled for married couples, who can jointly give gifts up to $26k/year total to a single recipient.

There is also a second, $1M lifetime limit of gifts in excess of the $13k annual limit before the gift tax is triggered. If you exceed this limit, then you’ll either have to pay the gift taxes that year, or use up a portion of the “unified credit” that would otherwise be used to offset the estate tax upon your death.

Gift tax returns and the gift tax rate
If you exceed the annual exclusion of $13k/recipient, you’ll have to file a gift tax return. But don’t worry… You still won’t have to pay the gift tax until you burn through that $1M lifetime limit.

So what happens once you exceed your $1M lifetime limit? How much will you owe? Given that the whole point of the gift tax is to stop you from avoiding the estate tax, it shouldn’t be a surprise that the gift tax rate mirrors that of the estate tax.

In 2009, the estate tax topped out at 45%. As I’ve noted previously, there’s no estate tax in 2010, but it will come back with a vengeance in 2011, with a top rate of 55%. This is significantly higher than the top income tax bracket, so we’re talking about some fairly serious taxes.

From : http://www.fivecentnickel.com/2010/09/17/what-is-the-gift-tax/

I just can't believe people try to hide their money just so taxpayers have to foot the bill for their nursing home care later on in life. This is exactly why the economy is in the shape it's in today. We are paying for other people's stuff while they sit on their money reaping the benefits. Lovely, just lovely! Makes me want to vomit! MIgrandma, I hope you at least pay the gift tax that was due on that money. You only have to do that if it was over 13,000 though, I think.

 

[mefordis]

So it sounds like that money could be MiGrandma's mother's ticket to entering a decent nursing home one day, if needed. With no money she wouldn't be able to enter a nice nursing home, but a sub standard one. Correct?

cornflake, that is not how it works with nursing homes. If you have funds available you use them and when they are gone you switch to medicare. I have been through this with my two great aunts and my mother in law. Both great aunts had about 50k in the bank which got them roughly 10 months in the nursing home. During that time paperwork was prepared and submitted to medicare. When their funds ran out medicare took over. They did not transfer to a different nursing home or even a different room. My aunts received excellent care at their nursing home and my mother in law receives excellent care at hers. Just because they are on medicare does not mean they receive low levels of care.

 

[kiddo76]

Unless that money was over 1 million $, there is no gift tax owed.



From : http://www.fivecentnickel.com/2010/09/17/what-is-the-gift-tax/

Right. Whether there is actually tax owed is undetermined at this point, but the gift is still subject to the IRS gift tax laws.

 

[Jabali]

OP here.

Went to the bank and closed out the 2 savings accounts our son's name was on, and re-opened them with just mine and DH's names on them.

And we have a 2:00 appointment with a lawyer to discuss anything else that needs to, or can be, done to ensure our son's creditors can not reach into Mom's money.

I was very glad she had this small "nest egg" when General Motors was in such dire financial straits a couple of years ago. We worried Dad's pension would be cut, or eliminated altogether and the "nest egg" would be there for her to draw upon to pay her bills so she could continue living on her own and not have to move in with us for financial reasons.

Yes, my Dad worked all his life, and paid his taxes year after year. I don't feel it's wrong for her to have this money for herself in her old age. With the way health care costs are soaring she may need it for things like that, if more cuts to her health insurance are made and she keeps having to pay more and more out of her pocket for medical care and her prescriptions, etc.
It is not a huge amount of money that we're talking about either.

I just don't want it taken away by creditors of our son, who has made some extremely poor financial choices. I don't think she should have to pay for his mistakes. Hopefully the lawyer this afternoon will help us out with that.

Sounds to me like you just raised a bunch of red flags if the creditors decide to look into your sons financial history.

 

[mefordis]

The nursing home situation for people who have no money saved is just sad. Those places.... I would NOT want my parents in them, I'll just put it that way.

MiGrandma, if there is anyway that money can be saved for her care later on, that would be great for her and your peace of mind. My grandmother died in a medicaid nursing home. She was on the mend from an infection and getting better every day until they transferred her to this home. Within days they basically dehydrated her and her kidneys shut down. Contrast that with my dh's grandma who does have savings and is in a luxury home for the elderly - five star just like the Ritz Carlton. We don't have to worry a bit about her care.

 

[brerrabbit]

Right. Whether there is actually tax owed is undetermined at this point, but the gift is still subject to the IRS gift tax laws.

This is directly in line with my original response although I said $600k but forgot they had raised the limit per person to $1 million (or $2 million for a couple) such that the $13,000 a year is a limit only to the extent that if the yearly gift is under that then you do not have to report it to the IRS. Over that amount and it counts against you $1 million lifetime.

As far as all the shifting around of money to avoid paying for elderly care I can tell you from having been through it that they will question where the money went, although based on the OP's comment the amount is not that great. I am certainly one who believes that people should be responsible for paying their own way and not letting the government do it but in that regard unless you have had to deal with this sort of thing you cannot believe what it costs for that kind of care. My mother lived in a alzheimers unit for 6 years and we thought we got a good deal because it only cost $3,200 a month. She barely made it month to month with SS, a $427 a month retirement payment after working for the same company for 37 years, and fortunately for us we found out she was eligible for VA benifits for disabled spouses of WWII veterans. It all came to about $3,400 a month and anything she needed beyond that we paid.

My MIL is in the same type facility today and it is $4,000 a month.

When our parents were planning for retirement I do not think they ever invisioned those kinds of costs and long term care insurance was not something that was widely available.

I would love to think everyone is thinking about these issues but can certainly understand some people needing help with these kinds of costs. We never received Medicade for my mother because she got the Veterans benifits but if she had not she would have probably had to go the medicaid route as well.

 

[rigs32]

If you buy your child a car, but keep it in your name, then YOU own the car, not your child. He/she may use the vehicle, but you are the one responsible for insuring it and can also claim it as an asset. The same logic applies here. OP, you see the money as your mom's, but under the law, it is 100% yours. You owe any taxes and it is counted as an asset of yours.

 

[msjprincess]

The nursing home situation for people who have no money saved is just sad. Those places.... I would NOT want my parents in them, I'll just put it that way.

MiGrandma, if there is anyway that money can be saved for her care later on, that would be great for her and your peace of mind. My grandmother died in a medicaid nursing home. She was on the mend from an infection and getting better every day until they transferred her to this home. Within days they basically dehydrated her and her kidneys shut down. Contrast that with my dh's grandma who does have savings and is in a luxury home for the elderly - five star just like the Ritz Carlton. We don't have to worry a bit about her care.

My grandmother is in a medicaid nursing home. It's very nice and I don't worry about her care at all.

 

[kathie859]

OP...I think you've created a financial tangled mess. Call an estate attorney and spend a few hundred dollars to set up the funds the correct way. There's a variety of ways to accomplish this from having a trust (not just for the wealthy!) to investing in a policy which covers nursing home care. We just updated our will, set up a trust, did our living wills and designated POA's all in one consultation.

Get some professional help so you don't risk tax or fraud issues. I'm sure you did what you did with the best of intentions and weren't aware of possible complications.

Good luck....

 

[mefordis]

My grandmother is in a medicaid nursing home. It's very nice and I don't worry about her care at all.

I hope so. They often appear that way on the outside, but once you get a closer look and when the family members are not around, the patients are left in the care of low paid workers and an under staffed establishment.

 

[beaucoup]

Isn't this why attorneys and financial advisors suggest for people to put the assets into LIVING TRUSTS? Wouldn't a living trust have solved this entire mess? Where I used to work, we used to see a lot of people come in with living trust paperwork from their attorneys. Again, this was in Massachusetts.

I think I am thankful my dad went to an atty for his estate planning and we won't run into any of this.

 

[msjprincess]

I hope so. They often appear that way on the outside, but once you get a closer look and when the family members are not around, the patients are left in the care of low paid workers and an under staffed establishment.

We visit all of the time, it's within walking distance of my brother's house. My grandmother is completely lucid. Believe me she would let us know if she was being mistreated in any way.

 

[Swan4Me]

I hope so. They often appear that way on the outside, but once you get a closer look and when the family members are not around, the patients are left in the care of low paid workers and an under staffed establishment.

Well we hit the jackpot for my Mom

It is the retirement home(all women) for a group of nuns who started the hospital next door(1/3 are nuns-the rest lay people=ladies). many are just old-not senile-so if anybody doesnt 'do right" by the patients , theres a whole group of nuns they have to answer to

 

[Pea-n-Me]

MOm turns 70 next week, she is going to be paying 2,700 a year on an great plan.. we looked and looked , met with several different people and finally went with the best one,so much to explain and so many different plans, but trust me , this is a good one.. It is a bit cheaper to pay for the year up front.. yes it will be more expensive because your MOm is older, but look around , you may find a better plan.

What all do you have on that plan that it is THAT much/month??? That is REALLY high, especially for a plan that only pays out for 5 years.

I had to dig around a bit to figure out the answers to these comments.

Rates in Massachusetts are not only much higher than in Louisiana, they are among the highest in the country.

The average cost of nursing home care nationwide is about $75,000 per year for a semi-private room. Massachusetts nursing home costs are above the national average.

http://www.massresources.org/nursing-homes.html

Nursing home rates …in Massachusetts rose significantly from 2009 to 2010, according to the 2010 MetLife Market Survey of Long-Term Care Costs. Private room nursing home rates in Massachusetts rose to over $120,000 a year or an average of $329 a day.

http://michaelmccarthylaw.com/2010/...husetts-nursing-home-room-tops-120000-a-year/

Louisiana Nursing Home
(avg daily rate)

$ 89.37

$ 32,620.05

Average Daily Costs of Louisiana Nursing Homes

Louisiana nursing homes cost below average when compared with other nursing homes in the nation. The average daily cost is $130-$134, while the national average is $198-$219.

http://www.guidetonursinghomes.com/local-nursing-homes/louisiana-nursing-homes.html

My mother is also 86 compared to ilovejack's mom at 69 or 70. Rates soar with age; that is, if older people are still insurable.

When to Buy Long Term Care Insurance

The best time to buy Long Term Care Insurance is before it is too late better known as you are no longer insurable - whether it be because of your age or your health. According to the AARP it is best to buy Long Care Insurance when you are middle aged, this is when you are more than likely insurable and the premiums are still affordable.

Since most Long Term Care Insurance companies do offer a "Good Health Discount" (AKA Preferred Discount) it is also a good idea to purchase Long Term Care Insurance prior to middle aged, before any health conditions arise (such as a common middle aged health condition like high blood pressure), with some carriers just because of this one condition the premiums could be up to 20% more because one may not qualify for the Good Health Discount.

Most Long TC Insurance companies will insure someone up to age 79-84, however the likelihood of getting one insured at that age is very slim, and even if one is insurable it is not likely the long term insurance will be affordable then.

http://www.longtermcareinsuranceonly.com/when-to-buy-long-term-care-insurance.htm

People at almost any age can buy coverage, but naturally the premiums go up considerably with age.

https://docs.google.com/viewer?a=v&..._7ReOb&sig=AHIEtbTjWX2aERDPTMqdA8A1Wd-JgcXAeA

The reason long-term care insurance premiums are greater than home or auto insurance is that the risk is so much greater that benefits will be paid. The Department of Health and Human Service estimates that 70% of people over age 65 will require some form of long-term care. The Alzheimer's Association estimates that at age 65, 1 in 7 people will be diagnosed with some form of dementia. At age 85, the odds sky rocket to 1 in 2. How much more expensive would your home insurance be if 50% of homes were expected to burn down? How much more expensive would your auto insurance be if 50% of cars were expected to be stolen? Not only does the client have to manage risk but so do the insurance companies.

LTCI premiums are on the rise - astronomically - and some carriers are dropping these types of policies altogether.

Premiums for long-term-care insurance are on the rise. A few of the major companies have applied for permission from state insurance commissioners to raise their rates by as much as 40 percent.

http://www.patriotledger.com/busine...long-term-care-insurance-prices#ixzz1hmwZtR3U

If you have long-term care insurance or have been shopping for it, 2010 has been a year of unnerving sticker shock. Major insurance companies have been seeking rate hikes as high as 40 percent on existing policies, and many carriers are reevaluating their products and pricing. One major carrier – Metlife – decided to stop writing new policies altogether.

http://blogs.reuters.com/reuters-mo...to-cope-with-soaring-rates-on-long-term-care/

Long-term care insurance (LTCI) is an expensive and complicated product. It's sold by a shrinking number of financially challenged insurers and subject to differing state rules that aren't always effectively enforced. Consumers have faced large rate increases, and complaints about industry sales practices and claims denials are on the rise. No wonder that private LTCI paid for only 7 percent of the nation's long-term care bill in 2007. Why would anyone want to buy this product?

Most policies have a range of $100 to $200 in maximum daily benefits, with higher premiums for higher daily maximums. In policies reviewed by researchers, on average, the daily maximum was $145 for individual policies and $128 in the group market.

The most common periods are three and five years, with higher premiums for the larger payment caps. Most consumers pick a three-year lifetime period.

Most LTCI policies are bought 10 or 20 or even 30 years before a claim is ever made on the policy.

http://money.usnews.com/money/blogs...10/long-term-care-insurance-getting-attention

Sample rate plan

$100 (not $300, as with my quotes) daily benefit in Texas $8,981 annual premium.

http://www.tdi.texas.gov/pubs/consumer/lrgpolicy5.html

There are some concerns that some of these policies aren't paying out what's expected, so it's always good to go with a reputable company:

http://health.usnews.com/usnews/health/articles/061119/27long.htm

And re: affordability by consumers:

Consumers must balance premium affordability with the types of services they may want, the daily benefit amount, the length of coverage and other options, such as inflation protection. But personal needs and the marketplace can change in the decades between purchasing and using a policy, Ms. Rowland said.

Moreover, some purchasers find they can no longer afford the premiums, even after years of payments. And it is even more expensive to acquire coverage late in life. A long-term care policy costs almost twice as much when purchased at age 70 than it would have at age 60.

http://newoldage.blogs.nytimes.com/2009/06/16/congress-airs-concerns-on-long-term-care-insurance/

Thanks for bringing it up, I learned a few things.

One final article for consideration for others thinking about LTCI:

Reuters Money

Is the long-term care insurance market sick?

Nov 19, 2010 19:26 IST

This might not be what the insurance industry had in mind when it proclaimed November to be National Long-Term Care Awareness Month: MetLife, one of the industry’s biggest players, decided to drop out of the market.

MetLife said earlier this month that it will stop writing new long-term care policies (LTC), although the company affirmed its commitment to stand by current policyholders. And another huge underwriter, John Hancock, recently suspended sales to employers who offer LTC insurance as an employee benefit, although it continues to sell policies to individuals.

Industry experts are quick to point out that the list of LTC underwriters changes from time to time, and the insurance carriers that do exit continue to service their existing customers. Plenty of household names remain in the LTC market, including John Hancock, Prudential, New York Life, Northwestern, Mass Mutual and State Farm.

But the MetLife and Hancock developments come against a backdrop of other signs of problems in the LTC market.

LTC sales have been hit harder than any other segment of the insurance business. Sales fell 24 percent in 2009, but bounced back 11 percent from that level in the first ten months of 2010, according to LIMRA, an industry research and consulting group. LIMRA reports that seven million LTC policies are in force — less than five percent penetration of the total possible market.

Unpredictable premium hikes are a key problem facing the industry. LTC policies require that customers keep current on premium payments from the time of purchase up until the point when a claim is made, but there’s no guarantee that rates won’t rise. Insurance companies need the approval of state insurance commissions to put through rate hikes and several have sought double-digit hikes this year. For example, Hancock has asked state regulators for permission to boost rates on most of its existing customers by about 40 percent.

The rate hike requests are driven, in part, by the current ultra-low interest rate environment, which makes it difficult for insurance companies to earn an adequate return on the investment portfolios that help fund policy payouts. Insurers need a 10 to 15 percent increase in premiums for every one percent drop in interest rates, according to the American Association for Long-Term Care Insurance.

But some LTC insurance providers also bet wrong on how customers would manage their policies. For example, just 3.8 percent of policyholders allowed their coverage to lapse between 2005 and 2007, and the rate was just 1.5 percent on policies at least six years old, according to LIMRA. That’s good news for consumers, but the rate is much lower than for other types of insurance.

“LTC is a tough business to be in,” says Jennifer Douglas, associate research director at LIMRA. “Pricing aside, consumer resistance is enormous, although they are becoming more aware of the need and the fact that they are responsible for funding a possible long-term care need.

“The insurance carriers are becoming more realistic about consumer willingness and ability to pay for it,” she adds. “We survey carriers every three years about their concerns, and they’re saying it may be too expensive, and that we may need to reinvent ourselves and offer more affordable products for the middle market.

Annual premiums can run $3,000 or more for policyholders who buy LTC coverage in their fifties, and it’s impossible to know if you’ll ever need to claim benefits. Some insurance companies are introducing less expensive policies with more limited benefits; others are introducing hybrid life-and-LTC products aimed at the affluent end of the market.

For example, Hartford Financial Group now offers a universal life insurance product through financial advisers featuring a “life access accelerated rider” that gives policyholders an option to begin drawing death benefits early to fund a LTC need, with flexibility on how the payout is used. The rider adds no more than 15 percent to the policy’s cost, says a spokesman, who adds that the vast majority of buyers are affluent boomers. “It’s really been exceeding our expectations.” Sales are up 66 percent in the past 12 months.

Certainly, the need to insure against long-term care risk hasn’t changed; the Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

That leaves advisers and consumers without clear answers.

“I’d like there to be something I could comfortably recommend to my client,” says Harry S. Margolis, an attorney specializing in elder law and founder of ElderLawAnswers. “This is what the premium is and this is what the benefit is and it’s not going to change. But it’s not there.”

http://blogs.reuters.com/reuters-money/2010/11/19/is-the-long-term-care-insurance-market-sick/

 

[tvguy]

My question is, could his creditors take that money from the bank if his name is on it? Even though it is not his money. We only put his name on just in case we were to die, then Mom could still get her money. Even when we do take his name off can they still come back and take it anyway? I would hate for my Mom to lose her money just because we (and she did agree to it) added our DS's name to it.

You need to see a lawyer, right away. Like first thing in the morning. I am assuming this all happened this year, and you need to get this straighted out this year.
If your son files for bankruptcy, any collection agency worth their salt is going to search back for anything and everything of value that is or was in his name.

 

[bumbershoot]

Let's say your Dad had a $500,000 policy that was cashed in.

they didn't "cash in" the policy, like they got the value of it before anyone's death; she got it when her husband died. Does that change your answers? Because it would boggle my mind, that someone could die and then the spouse would have to pay back the cost for care, with money that *didn't exist* before the person died.

I know that MIL didn't have to pay back anything, once FIL died, and his care was through medicare and medicaid. Of course, he didn't have any life insurance, since they thought for decades that she would die first.

Isn't this why attorneys and financial advisors suggest for people to put the assets into LIVING TRUSTS? Wouldn't a living trust have solved this entire mess? Where I used to work, we used to see a lot of people come in with living trust paperwork from their attorneys. Again, this was in Massachusetts.

Honestly, I think that all of this was done in an attempt to honor's mom's wishes, without any ill intent (and it kinda sounds like there was some misunderstanding with that lawyer who talked about a spend-down), in a time of grief and sorrow after MIG's dad died. I think that maybe we can all learn from this, withOUT being so harsh with her. She's here now, learning things that her family didn't know before.

 

[Northstar]

I suppose with interest rates near zero the way they are it's not too important, but OP, did you put the interest from that savings account on your income taxes, or your mom's, last year? Because it should have been on yours.

Hope you can get it straightened out. The Dis is a source of all kinds of information, isn't it?

 

[npmommie]

I hope so. They often appear that way on the outside, but once you get a closer look and when the family members are not around, the patients are left in the care of low paid workers and an under staffed establishment.

I just wanted to say this is a broad brush you are painting with here.
I have a part time job, I am an NP that covers for nursing home residents, the homes I cover have a high percentage of medicaid residents, and the workers are a hard working, loving bunch of people.
they care about the residents, I am on the inside and I have never never seen anything unsavory.
I am not saying there are no bad nursing homes, but what I have experienced and seen here that is not the case.

It is unfair to the caring hard working nurses and staff in these homes to say the residents are getting bad care.
The vast majority of them love their work and love the residents they care for daily.

 

[Swan4Me]

I just wanted to say this is a broad brush you are painting with here.
I have a part time job, I am an NP that covers for nursing home residents, the homes I cover have a high percentage of medicaid residents, and the workers are a hard working, loving bunch of people.
they care about the residents, I am on the inside and I have never never seen anything unsavory.
I am not saying there are no bad nursing homes, but what I have experienced and seen here that is not the case.

It is unfair to the caring hard working nurses and staff in these homes to say the residents are getting bad care.
The vast majority of them love their work and love the residents they care for daily.

I love the staff at Mom's place-all of them
Esp the Activities Director-OMGosh she does things with the old ladies that are a HOOT!!!
They will all put on large hats and have a tea party with real china tea cups.........they have popcorn parties, of course BINGO, go outside in spring and plant veggies in their raised Gardens, craft projects galore.....it is a fun place to live.

 

[USMC0193]

they didn't "cash in" the policy, like they got the value of it before anyone's death; she got it when her husband died. Does that change your answers? Because it would boggle my mind, that someone could die and then the spouse would have to pay back the cost for care, with money that *didn't exist* before the person died.

I know that MIL didn't have to pay back anything, once FIL died, and his care was through medicare and medicaid. Of course, he didn't have any life insurance, since they thought for decades that she would die first.

"The main features of the OBRA ‘93 Medicaid estate recovery mandate are described below.7

Highlights of the 1993 Estate Recovery Mandate:

States must pursue recovering costs for medical assistance consisting of:

Nursing home or other long-term institutional services;
Home- and community-based services;
Hospital and prescription drug services provided while the recipient was receiving nursing facility or home- and community-based services; and
At State option, any other items covered by the Medicaid State Plan.
At a minimum, states must recover from assets that pass through probate (which is governed by state law). At a maximum, states may recover any assets of the deceased recipient.

Recoveries may only be made from the estates of deceased recipients who were 55 or older when they received Medicaid benefits or who, regardless of age, were permanently institutionalized. However, states may exempt recipients if their only Medicaid benefit is payment of Medicare cost sharing (i.e., Medicare Part B premiums).

If a state has elected to impose TEFRA liens12 on recipients’ homes, then it must also recover from the estates of those recipients. States may impose liens on property of Medicaid recipients of any age if they are permanent residents of a nursing home or other medical institution, and if they are expected to pay a share of the cost of institutional care."

You are semi-correct . . . the only reason why your MIL didn't pay back was because she was the surviving spouse, but you and your husband need to be prepared to pay your MIL's Medicaid debt and your FIL's medicaid debt out of the inheritence. There will be liens against the estate . . . . just prepare yourself. But then again, since your MIL is Korean, she is probably against western medicine because we all know that your husband was born 44 weeks premature.