How can mom pay her taxes?
February 27, 2015 11:23 AM   Subscribe

My Mom. Medicaid. A Miller Trust. And taxes owed. How can I make this happen?

We're in a conundrum over my mother's taxes this year, and I hope a miracle can happen and a fellow MeFite has an answer.

• My mother (in a nursing home for dementia) started receiving Medicaid in November.
• All of her funds are in a Miller Trust, which is limited to only medical expenses (i.e. paying her share of the nursing home cost)
• It looks like she will owe income taxes this year.

Q: How does my mother pay her taxes when the only funds she has is in the Miller Trust, and that can only be used for medical expenses?

I've called Indiana's Medicaid office, and they were clueless, and suggested I call Indiana's Family and Social Services Administration. I called them. Clueless, as well.
The accountant helping us with Mom's taxes has no idea how to make this work, either. Obviously, I have no clue. This is a huge conundrum.
I saw this previous AskMe, but it doesn't address the Miller Trust, which is the big stumbling block.

If anyone has useful information on this, I'd be eternally grateful.

posted by Thorzdad to Work & Money (8 answers total) 1 user marked this as a favorite
Can you talk to the lawyer who set up your miller trust ? I'd think that would be the best starting point.

(Unless you're asking where the money to pay the taxes should come from, in which case, check with a CPA to make sure she does owe taxes, and if there is no income and you can't use the trust, and the trust doesn't have a TIN [or use her SSN as the TIN] )
posted by k5.user at 11:33 AM on February 27, 2015 [3 favorites]

Check your Memail. Miller Trusts are new to Indiana and all the kinks are still getting sorted out.
posted by leotrotsky at 11:39 AM on February 27, 2015

If it turns out there is no source of money to pay her tax liability (assuming there is a liability), she could file for an offer in compromise.

It sounds like the same situation as any person who has a tax liability and insufficient assets to pay that liability. Whether a federal/state tax lien could seize the income or principal of the trust is another question. As well as whether such seizure would cause the trust to no longer qualify as a Qualified Income Trust and whether she'd have to repay any Medicaid funds remitted on her behalf if it were disqualified as a QIT.
posted by melissasaurus at 11:41 AM on February 27, 2015

What income does she have that she owes taxes on? If she is one Medicaid, presumably her income should be low enough that she owes little or no taxes.
posted by JackFlash at 12:24 PM on February 27, 2015

What income does she have that she owes taxes on?

As part of her spend-down, we had to cash-out a couple of annuities, a bit of stock, and her life insurance. We also sold her condo. That was all done last summer. The man advising us at the time told us to not have taxes withheld from those cash-outs. He also advised us to stop having taxes withheld from her widow's pension. That all sounded odd to me at the time, and, in hindsight, it's downright crazy. But, water under the bridge and all that.
posted by Thorzdad at 12:30 PM on February 27, 2015

That is really unfortunate advice you got. Presumably not all of her income is directed into the Miller Trust, only enough to qualify for the Medicaid threshold. You could contact the IRS and inquire about a multi-year installment plan for her taxes. They are actually quite helpful in these situations if you are making a good faith effort to pay your taxes.

But first you should probably talk to an elder law attorney in your state. The IRS may consider the Miller Trust as a tax evasion scheme and require backing money out of it. Best of luck in this difficult situation.
posted by JackFlash at 12:54 PM on February 27, 2015 [1 favorite]

> The man advising us at the time

Not a lawyer?

Everything that you say you sold sounds like a non-income item. Selling an asset does not generate income, though it might generate a capital gain. If she lived in her condo for more than two years, there is likely no capital gain tax on the appreciation (if any) from that sale, up to $250,000.

Please seek competent professional advice on this issue - an elder law attorney, an accountant, or both.
posted by yclipse at 2:25 PM on February 27, 2015

Everything that you say you sold sounds like a non-income item.

Not so. Capital gains on the condo most likely fall below the $250,000 exclusion, so not a problem. But you must pay tax on any gains beyond the original investment for the annuity and insurance cash outs and of course any stock gains. If it was a deferred annuity, then you will owe taxes on the full amount, just like a 401(k).

Usually the insurance company will send you a 1099-R and indicate the taxable amount in Box 2.
posted by JackFlash at 3:48 PM on February 27, 2015

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