Sold off mom's assets to qualify for Medicaid last June. Tax implications?

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Sold off mom's assets to qualify for Medicaid last June. Tax implications?

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I'm wondering, for those who've been through this: We had to do the Medicaid spend-down to get mom qualified for SNF benefits this past June. She had stocks and life insurance policies. When I could, I told them to withhold taxes on what they liquidated, but I couldn't for each asset. So now she's got no money left, but will likely owe on some of the capital gains, I'm assuming.

Before this, she didn't owe taxes at income tax time. She didn't pay Federal and state would refund her what she'd paid in on social security and her tiny survivor's pension.

Seeing as her income now all goes to the SNF except for the small monthly stipend, how will the government expect her to pay on the profit from the stocks and life insurance policies?

Financial Planning Medicaid Spend Down Taxes

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1) It's almost tax time. A tax professional needs to figure her 2019 taxes. If a refund is due, the tax person will take his/her fee out of her refund. Any remaining funds deposit into her monthly banking account. If she owes and can't pay, ask the tax person what the next step is. If you know she will never be able to pay, I would ask an attorney about this. I would not sign any papers to extend payment time etc.
If 2019 taxes paid, no monies owed.

2)If Mom owes try this: Prior to her receiving the bill from the IRS, talk to a couple different attorneys. If it's not a huge amount of money, maybe compare a tax attorney to a probate attorney. A tax attorney might be real good if her taxes were ever skipped or just messed up beyond recognition.
A Probate attorney willing to do business on behalf of your mom's pre and post death issues, might be a better choice. Taxes are pre and post death so an uncomplicated tax issue probably doesn't require a tax attorney.
A probate attorney might also be willing to draft a letter or send a notice to the IRS, should it be necessary.

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“If a refund is due, the tax person will take his/her fee out of the refund” is incorrect houseplant. Thats how it works at H&R Block but if you go to an actual tax professional, most cannot take their fee out if your refund because they don’t receive your refund in the first place. Your refund is sent directly to you by the IRS and state of state taxes are filed. You pay the tax professional upfront before they submit your return. If you are having your refunds deposited in to your tax preparers bank account, you should stop doing that.

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magnumpi29;

Your comments aren't relevant to the discussion at hand, so I posted my comment to you personally under your profile. It doesn't belong here any more than your comments do.

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Please contact an elder law attorney first and then your accountant.

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First thing you need to do, before you do anything, is to contact an Elder Law Attorney, they are familiar with elder problems, unlike a regular attorney. It is too bad you didn't do this first, but you can save yourself a lot of grief if you do it ASAP.
YOU ARE NOT RESPONIBLE for your mother's bills, don't take on her debt.
In the months before my husband died he was in two nursing homes, every week I got applications from DHS to apply for Medicaid, I threw them in the recycle barrel.
I met with an Elder Law attorney, we have a law in our state where if a spouse agrees to sign the house over we can have a Quick Pro Quid deed. This gave me the house and he had lived to go on Medicaid they could not have taken half the house to pay for his expenses. If we hadn't done that I would have lost half the to pay for his Medicaid. Also he had a credit card on which he had a huge balance, which I did not know about, upon his death the company contacted me to make arrangements to pay off the balance. I did not respond and sent the info to the attorney, she contacted them and I did not have to off the card, saving me thousands of dollars.
EVERYONE reading this contact an ELDER LAW attorney before doing anything in regard to finances for your loved one, it will save a lot of stress and heart ache.

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Cali, your 1st answer says Medicaid will just have to pay more. Doesn't Medicaid do a share of cost determination and then they pay the difference for a year? Meaning that the NH would not go after Medicaid but the resident and their representative because her share is short.

I don't understand how it works and it seems confusing, just looking for clarification about what you advised. Thanx.

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When I made that comment, I was talking about what happen if the OPs mom owes federal taxes and the IRS garnished her income. Her share of cost of would down by whatever % was garnished and that would mean, I would think that Medicaid will be billed more.

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Is it bash adult children month? This is the third or fourth comment like this in the last couple of weeks? Or maybe a troll with a couple of accounts? Who knows?

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Here is another similar comment left by this poster on another thread in November:

"Why in the world would you want to put her there (in a nursing home) if you know she would hate going that much? I couldnt even take my dog to the pound let alone a human being."

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Call 211 to get the number for your county senior community help line-- or to make an appointment with a omnibudsman to help represent your Mom. Our Area 10 people in Monroe County in Indiana are incredible at helping us find answers to all thing related to getting our elders the help they need. The also help to find subsidized housing.

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That is not only a poorly informed comment, it’s judgemental and unkind.
“Spend down” must take place regardless of large or small assets are.
Great care can take place in a nursing home, too. Many family caregivers do not necessarily give good care. That’s a very broad assumption and it ignores the fact that nursing home staff are trained.

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Here is what I dont understand?????? If you had all this money to get rid of why not just leave her in her home or your home and have 12-hour care (except when she sleeping.....This way she gets great care.
When the money was all gone, which would take awhile THEN put her in a nursing home!
Depending on assets and monthly income, even with 12 hour care, depending how long she lives you may have never needed the home!

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I wish we could could put guilt inducers like you in a kennel where you belong.

What does it matter where mom was as long as she was properly cared for?

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You definitely now need an accountant and to take all your papers to that person. This is not something we can answer on the forum and in general it is best to take advice with legal and medical or financial problems to the experts. Wishing you the best of luck.
This may not be as bad as you think; it may be worse. But you cannot know without checking it out.

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Agree with another post - contact an IRS attorney where you live. They can give you accurate info for your question.

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From what I understand, it depends on the laws of the state - each one is different. They could come after that money...they did in New York to my neighbor's parents.

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We haven't needed Medicaid yet or a NH, but perhaps can suggest help. When we moved mom to MC, it appeared that this would be fully tax deductible. I didn't want to mess it up, but I don't trust ANY of the "usual" tax preparers (the blockheads were what mom used and boy can they F it up, big time!) CPAs deal with all kinds of finances, not specifically taxes and can be expensive. I searched around and found there are people who are Enrolled IRS agents. I went to the one closest to where I live and he's done a super job!

I also had to use him when we sold mom's condo, because it was a Life Estate, and she was/is still living, so a large percentage went to us (we put it ALL except the gains taxes back into the trust for her benefit.) THAT would have been a nightmare to deal with! Even his estimate, without all the documents in hand yet, so we could pay the quarterly estimated was spot on. His charges were pretty much in line with what the blockheads fleeced mom for (fleeced because they made a HUGE mistake!)

The IRS list is a CSV file, so I can't open it to see who is on it, but the following link will give you a list of those within X miles based on zip code:

https://taxexperts.naea.org/

I understand the question is more how to pay if money is owed, but this person could review everything and perhaps give you the answers you need or even get the results to a negligible amount. Since they are "enrolled" with the IRS, they have to keep up to date with everything and have a lot more expertise than many.

Side note: Sadly Medicare, like Medicaid and now the VA, also does a look back. I was really surprised this year when I received mom's 2020 SS update - they do a 2 year lookback (just started year 3 MC) and they consider not only the pension and SS as income, but all the trust funds fed in to cover her facility cost as income. As a result, they are charging her MORE for Medicare! My comment back was gee, had we left the money in CDs in mom's account, it wouldn't have been income, why is THIS, the SAME money (excluding any gains) considered INCOME??? No response. So, beware. If you move money to a trust and then use it, even though it isn't paying for exorbitant things, such as vacations or bling, just her "rent", SS considers this income and will charge more for Medicare. :-(

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Yes, and if you take money out of a traditional IRA, that money is considered ordinary income, and if it pushes your Adjusted Gross Income high enough, then you'll be charged more for your monthly Medicare premium (i.e., a bigger chunk of your SS payment will be taken out--for Part B--each month for the year after you file.) I'm being "hit" this year for money I took out in 2018, reported on my 1040 April 2019, and being taken out of my SS for this Medicare premium each month of 2020.

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first you have to know this:
https://www.elderlawanswers.com/spending-down-assets-to-qualify-for-medicaid-12003

Then try and find the answer of when you’ve spent the medicaid down and you are 2k in assets of when you can now apply for medicaid. I thought it was 5 yrs, then you can use your medicaid, you might want to research that. If you did this <5 yrs you might not be in luck.

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The IRS knows you can't bleed a rock. If you can show she has no money and insufficient income, they will write it off. Should she win the lottery they'll come back to collect but as long as she's broke and not hiding funds they'll leave her alone.

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Consult a lawyer. I hope you consulted one before selling her assets because now she MAY have to wait 5 years to qualify for medicaid or medicare.. ie, Long term care. Dumping assets is tricking business and may DISQUALIFY her.

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Good! Kids need to start taking care of there parents instead of dumping them in a nursing home. Parents changed your dirty stink diaper and rocked you to sleep when you was crying all through the night time to be there for them now

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I just went through this as well, although my mother's assets were her home and an annuity. As far as capital gains on the home/property, capital gains should be filed and paid by quarter following the month the property was sold. We sold the house in October so we had until January 15th to pay cap gains taxes. The cap gains form is literally a single sheet with a total amount paid line and the address of the IRS (we had to file 1040-ES both state and federal). You don't send the IRS any backup documentation at that time, that will happen when you file the formal income tax for the year (I believe the Schedule D form). This form asks for all the details of the sale of the property. Given that we cashed out an annuity, we could only estimate what we thought taxes on that income be when we filed the cap gains form (1040-ES). We will "true it" once we get the 2019 tax form from the annuity company (which I hope to get soon!) and file 2019 taxes return.

I have a feeling that you might freak out because you probably didn't pay cap gains before the deadline. I don't know if it matters THAT MUCH, as long as you complete the Schedule D form this year. I say this because I was told just last week by a former tax attorney for the IRS (who works at my company) that the IRS just wants their money when the dust settles. I would say, just file the tax return this year and move on. Hope this helps.

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In my opinion, It is a very complicated system. go to the best elder lawyer you can find.

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Ellenh6, I want to share with you that most elder law attorneys are not tax specialist.

If they have integrity they will tell you to see a tax lawyer or a CPA/tax specialist.

If they don't have integrity they will charge thousands and more to figure it out and then potentially steer you in the wrong direction.

It is so very important to use specific professionals to protect yourself and to save money.

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When you sell securities that have a potential tax implication, you are usually required or have the option of withholding taxes. I always recommend that people consult with a tax professional to run the numbers to see if taxes will be due based on the cost basis of the asset being cashed in/surrendered. Always better to have taxes withheld to be safe, but if that is not an option, I recommend that people pay an estimated tax payment to the IRS/State just to be safe. The only issue in doing this without first calculating the tax liability is that if a refund is issued, then that refund could potentially result in the beneficiary of the Medicaid being kicked off of Medicaid until the funds are spent down.

Re the withholding of taxes from monthly income - Medicaid will usually not allow withholdings from any income - because those withholdings usually result in a refund to the beneficiary. In the first year of eligibility, Medicaid allows the beneficiary to spend down the refund over 9 months (states may be different), as the withholdings were before the application would have been filed - but future months would be prohibited.

Regarding any taxes that may now be due, I have filed an application where my client had a levy assessed against his SS income. I (with the POA/authorized fiduciary) had to contact the IRS and prove that my client was on Medicaid - in a SNF (and that Medicaid required that ALL income go to the SNF) and they "suspended" the levy - allowing all of the client's income to go to tht SNF, since Medicaid's calculation of the Cost of Care "included" the amount of the tax levy - leaving my client owing those funds to the SNF. You might have to file the taxes - see what taxes are due, and then contact the IRS before the process gets too complicated to fix quickly. Confusing process - sorry.

Good Luck!

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Seaglass (BTW, I like that name; it reminds me of soft sandy beaches, smoothed glass with rounded edges and often lovely colors bleached by sun exposure),

You wrote that you have no way of knowing what the stocks cost when they were bought. The company issuing the stock, or a mutual fund company if that's what the stocks are, has that information. They calculate the basis for you.

I raised that issue with the mutual funds holder after my father died and was relieved to learn that I don't have to do any of those kinds of calculations. You don't have to calculate profits; the fund also calculates gains (or losses) on stock.

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Excellent point, GardenArtist. In addition, there should be a deduction of at least $12,200 (or higher if itemizing results in a greater amount), so this should knock down the profits and thus the tax bill considerably. If any of the stocks have gone DOWN in value (unlikely over the course of 25 years, but possible), then there would be a capital loss, which would also count against the gains.

Not to encourage anyone to procrastinate, but you will have 2 1/2 months to get all this information together before you have to file and pay any taxes, and hopedly by then you will have all the pieces of the puzzle you need to calculate the tax.

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Retired IRS Revenue Officer (tax collector) here...the IRS can and should levy (garnish) her Social Security checks if she owes. If you knew not enough tax would be withheld you make Estimated Tax payments quarterly during the year or hold onto enough to pay when the return is filed. She can lose 15% of her SS to the tax debt collection. Just another comment...if you owe federal student loans (maybe that you backed for your kids) or child support, guess what...your SS can also be levied for that. Budget that into your retirement planning.

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If you sold all her assets, how was that money spent? It could potentially have been applied to tax bills if there are any. Maybe I missed something.

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Some of it went to her care (she was self-pay at $9k a month for 3 months at the SNF), some not. When I had an option to say "without expected taxes" I did, but that wasn't the case with some of the stocks. And I have no way of knowing what she paid for stock x or y, 25 years ago, to know how much she made as profit on the sale.

We aren't talking huge sums of money. Maybe a grand total of 15,000 in stocks.

I think I'll just find a way to pay her tax bill myself. It's stressful enough dealing with her unpaid and unpayable credit card bills. I don't want to deal with the IRS, in addition.

Thanks, everyone.

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I think you need to wait for all the 1099s to come in. By law, you have to have them by January 31st. Have her taxes done, she may break even.

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They have to try to have them by Jan 31st. I don't get some 1099s until the middle of the summer. That's why I don't file my taxes until Oct. Oct 15th is the real tax filing date.

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I don't think anyone can give an accurate answer at this time as to whether there's any tax liability - perhaps after the end of January when all tax data should have been mailed out.   And there are more than a few issues on cap gains taxes.

Any taxes on capital gains might be offset if the dividends are qualified dividends.    I've been able to minimize the cap gains taxes for years b/c of that criteria.   If I understand correctly, the entire asset liquidation occurred this year?

Igloo, one of the posters here, is a Medicaid expert.   She has an ability to sense Medicaid posts and respond in detail.

What I would do is create a spreadsheet logging all relevant data, amount of each fund liquidated, sale price,withholding data. etc., when you receive the end of the year statements.    This would be the data used to prepare a 1040.

With a spreadsheet formatted, it's a lot easier to calculate automatically once you input the formulas, and you can keep a running total for an accountant.

And I would definitely hire an accountant, preferably someone with Medicaid qualification experience.    I've found that the large firms have a wide variety of specialty accountants, but they're more expensive.   When I needed a trust accountant, I found a small firm, received speedy treatment and was very pleased.

If you need help on locating an accountant and have an elder law attorney, she/he might be able to suggest one or more familiar with Medicaid and taxation.

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In addition, it may turn out that the standard deduction of $12,000 (or perhaps higher if itemizing turns out to yield a higher figure) offsets the gains, and if any of the stocks actually LOST value (unlikely after 25 years), then this capital loss would help to offset gains.

The result may be that the tax bill is minimal or even zero.

In any case, one has 2 1/2 more months to get all the necessary information together (not intended to encourage anyone to procrastinate, however!)

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If she owes federal taxes, all they can do at this point is garnish her income. For social security they can only garnish a certain % and it’s a small amount. I don’t know if they will do that though. So it sounds like.....if they garnish any of her income, Medicaid will just have to pay the nursing home more money. There’s nothing else for the IRS to levy at this point.

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I think you are right. The nursing home takes whatever paycheck she gets and Medicaid makes up the difference. So it doesn't matter if her SS check is smaller than you thought. The bill should be paid and the SNF will get the agreed upon amount.

Sold off mom's assets to qualify for Medicaid last June. Tax implications?

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