Hand over the money now or later?
August 23, 2019 6:44 PM Subscribe
For Reasons, my sister and I will be inheriting money (a bit over $1M, split evenly between us) within the next ~10 years. We would like to give some of this to our mom, but are trying to decide how best to arrange it given the circumstances.
My mom is in her mid-60s. She is not retired yet (she works retail 40-hours per week), but I expect her to stop working altogether within the next year. I don't know the exact details of her financial situation, but it's been pretty tight for years. She owns her own condo and I believe she does not have any debt, but her income is in the low $20,000s. She has some retirement funds (again, really no sense of how generous these are but assume minimal). She will begin drawing social security within the next few weeks and that will actually approximately double her income according to what she's been told at the SS office (she is entitled to my late father's benefits).
While I recognize that my mom's situation isn't dire, it's been very hard emotionally to watch her live on such a limited income for the past several years. I won't get into the backstory here, but basically she was unexpectedly widowed at a young age with two young kids, and combined with that she was not super prudent with the money that she did have at the time. So now she's in a situation where her social circle is made up of upper-middle-class people (who are her dear old friends) who can afford to travel and invest and go out to nice dinners, and she really cannot. I know this is not the world's biggest tragedy but anyway....now my sister and I have this mechanism for potentially helping her.
HOWEVER. I am wondering how best to do this, and thinking ahead a little bit about long-term care costs. If my mom ends up needing to live in a facility or something, isn't it better for her to have fewer assets in her name? Obviously my sister and I will always be there as a backstop, but I wonder if it might be better for us to hold onto a larger chunk of the money so that later financial issues are simplified?
Here are the options we are considering:
1. Sister and I inherit all money, and gift to my mom on an annual basis (within the tax limits for gifting annually/lifetime, which we are aware of). This is the simplest option, and how things are currently arranged. However, it does prevent my mom from getting more than ~$30K in a single year, and there is some pretty substantial remodeling that I know she's interested in doing in her condo (maybe would cost ~$50K?). But in theory she could either just save up for a couple of years or take out a low-interest home equity loan or something?
2. Set up a trust with Sister, Mom, and me as beneficiaries. We have a lawyer who is dealing with the inheritance stuff who could arrange that, so no problems there. This allows for basically any distribution schedule we want, and then I'm left with the question of if we should give her what we'd ultimately like her to have of the money (probably ~40%) or if we should give less of a lump sum with the understanding that we are always a backstop and will probably gift more annually but will try to keep her overall assets lower-ish?
Any thoughts here? My mom has no huge health problems now but she lives many states away and I'm trying to be mindful.
My mom is in her mid-60s. She is not retired yet (she works retail 40-hours per week), but I expect her to stop working altogether within the next year. I don't know the exact details of her financial situation, but it's been pretty tight for years. She owns her own condo and I believe she does not have any debt, but her income is in the low $20,000s. She has some retirement funds (again, really no sense of how generous these are but assume minimal). She will begin drawing social security within the next few weeks and that will actually approximately double her income according to what she's been told at the SS office (she is entitled to my late father's benefits).
While I recognize that my mom's situation isn't dire, it's been very hard emotionally to watch her live on such a limited income for the past several years. I won't get into the backstory here, but basically she was unexpectedly widowed at a young age with two young kids, and combined with that she was not super prudent with the money that she did have at the time. So now she's in a situation where her social circle is made up of upper-middle-class people (who are her dear old friends) who can afford to travel and invest and go out to nice dinners, and she really cannot. I know this is not the world's biggest tragedy but anyway....now my sister and I have this mechanism for potentially helping her.
HOWEVER. I am wondering how best to do this, and thinking ahead a little bit about long-term care costs. If my mom ends up needing to live in a facility or something, isn't it better for her to have fewer assets in her name? Obviously my sister and I will always be there as a backstop, but I wonder if it might be better for us to hold onto a larger chunk of the money so that later financial issues are simplified?
Here are the options we are considering:
1. Sister and I inherit all money, and gift to my mom on an annual basis (within the tax limits for gifting annually/lifetime, which we are aware of). This is the simplest option, and how things are currently arranged. However, it does prevent my mom from getting more than ~$30K in a single year, and there is some pretty substantial remodeling that I know she's interested in doing in her condo (maybe would cost ~$50K?). But in theory she could either just save up for a couple of years or take out a low-interest home equity loan or something?
2. Set up a trust with Sister, Mom, and me as beneficiaries. We have a lawyer who is dealing with the inheritance stuff who could arrange that, so no problems there. This allows for basically any distribution schedule we want, and then I'm left with the question of if we should give her what we'd ultimately like her to have of the money (probably ~40%) or if we should give less of a lump sum with the understanding that we are always a backstop and will probably gift more annually but will try to keep her overall assets lower-ish?
Any thoughts here? My mom has no huge health problems now but she lives many states away and I'm trying to be mindful.
According to the article linked below, tax structures don’t do much to prevent you from giving to your mother. Yes, you’ll have to fill out gift tax returns if you pay for her house remodel, but as I understand it, you don’t actually have to PAY taxes on your giving until it
surpasses $11 million (!).
(This is in addition to the $15K that can be given per person per year — so if you wanted you guys could collectively give her $30k a year without having to talk to the IRS about it, in addition to which you could pay for her remodel and file a gift tax return for that.)
posted by hungrytiger at 7:05 PM on August 23, 2019 [8 favorites]
surpasses $11 million (!).
(This is in addition to the $15K that can be given per person per year — so if you wanted you guys could collectively give her $30k a year without having to talk to the IRS about it, in addition to which you could pay for her remodel and file a gift tax return for that.)
posted by hungrytiger at 7:05 PM on August 23, 2019 [8 favorites]
You can give her as much money as you want, you just have to report the amounts over the annual exclusion. The lifetime exclusion is 11.4 million, so you don't have to worry about it. You should verify this with your own tax preparer and if you don't have one, it is time to get one when you inherit this money.
posted by soelo at 7:09 PM on August 23, 2019 [3 favorites]
posted by soelo at 7:09 PM on August 23, 2019 [3 favorites]
Yes a million dollars is money that means you should hire professionals, not solicit free answers from internet strangers. Or hey buy a bunch of gold, and some land in Florida. But I’d lean towards using an expert who has fiduciary duty to you , ymmv.
posted by SaltySalticid at 7:20 PM on August 23, 2019 [9 favorites]
posted by SaltySalticid at 7:20 PM on August 23, 2019 [9 favorites]
combined with that she was not super prudent with the money that she did have at the time.
It is incredibly nice of you and your sister to help your mother out with the money you will be receiving. Concur with everyone else about the tax implications. But also wanted to think about this.... if your mom is making 20K a year, I'm not sure why she is even considering a 50K reno? So it seems like the first step is really figuring out what your mom's resources are and then working on a plan. Like, maybe you want to just pay for the reno instead of gifting her any money at first? Definitely concur with SaltySalticid, a fee-only financial planner can help you make the best plan for you and your mom once you know what the actual situation is.
posted by jessamyn at 7:21 PM on August 23, 2019 [16 favorites]
It is incredibly nice of you and your sister to help your mother out with the money you will be receiving. Concur with everyone else about the tax implications. But also wanted to think about this.... if your mom is making 20K a year, I'm not sure why she is even considering a 50K reno? So it seems like the first step is really figuring out what your mom's resources are and then working on a plan. Like, maybe you want to just pay for the reno instead of gifting her any money at first? Definitely concur with SaltySalticid, a fee-only financial planner can help you make the best plan for you and your mom once you know what the actual situation is.
posted by jessamyn at 7:21 PM on August 23, 2019 [16 favorites]
if your mom is making 20K a year, I'm not sure why she is even considering a 50K reno?
Especially on a condo? It might make sense for resale value, if it’s carefully done and depending on where she lives, but definitely not without a lot of research on comps and some honest consideration about the next couple decades.
posted by padraigin at 7:49 PM on August 23, 2019 [2 favorites]
Especially on a condo? It might make sense for resale value, if it’s carefully done and depending on where she lives, but definitely not without a lot of research on comps and some honest consideration about the next couple decades.
posted by padraigin at 7:49 PM on August 23, 2019 [2 favorites]
Consult a lawyer who concentrates on elder law issues for recommendations. What he or she will say can include the following:
1. Anything that is spent to maintain or improve her homestead will be sheltered, since the homestead is a non-countable asset for Medicaid purposes. A new furnace, new windows, a new sunroom could improve the condo without any Medicaid penalty, so long as the homestead is worth under $550,000 or so.
2. Anything that is spent by you to pay for travel or vacation for her will not result in any penalty if there is a later need for Medicaid coverage for nursing home care. Take her for a month-long trip to Bermuda. If you cannot go, send her on her own.
posted by yclipse at 8:31 PM on August 23, 2019 [7 favorites]
1. Anything that is spent to maintain or improve her homestead will be sheltered, since the homestead is a non-countable asset for Medicaid purposes. A new furnace, new windows, a new sunroom could improve the condo without any Medicaid penalty, so long as the homestead is worth under $550,000 or so.
2. Anything that is spent by you to pay for travel or vacation for her will not result in any penalty if there is a later need for Medicaid coverage for nursing home care. Take her for a month-long trip to Bermuda. If you cannot go, send her on her own.
posted by yclipse at 8:31 PM on August 23, 2019 [7 favorites]
Talk to an attorney who specializes in estate planning.
posted by bunderful at 8:36 PM on August 23, 2019 [2 favorites]
posted by bunderful at 8:36 PM on August 23, 2019 [2 favorites]
Another reason to talk to a financial planner is to make sure she is maximizing her SS income. I know there have been changes recently around the rules that allowed people to draw on a spouse's SS and then switch to their own later on--it may be that she's already been advised on that and has planned on that basis. If that's not the case, though, delaying til 70 to draw benefits may allow her to maximize her monthly income (this can be easily calculated for her by a financial planner), and so I would think in terms of your gifts making it possible for her to do that. One rarely finds one needs less money as one gets into one's 80s; SS is the only longevity insurance most folks have.
posted by praemunire at 9:08 PM on August 23, 2019 [5 favorites]
posted by praemunire at 9:08 PM on August 23, 2019 [5 favorites]
I think one big question is whether you think she will need Medicaid to pay for nursing home care in her old age. (Medicare will pay for hospital cost but only a very limited amount of nursing home care) Where I live, assisted living will cost $4k and up per month and nursing home care (which requires more skilled staff and more intensive care) can easily be $12k per month. If your mother is not likely to have that kind of money, then she will find herself using Medicaid. Medicaid is for people who have spent down all of their assets and it will pay for the full costs of their care. If this is likely to be where she ends up then you don't want to put your assets in her name since it will just delay the process of spending down her assets in order to quality. You are better giving her smaller gifts that improve her quality of day to day life which you can continue to do (within limits) to make her life better when she is on medicaid.
On the other hand, if there is enough money and you are happy to spend on her care instead of saving for your sister and yourself, then you no longer have to worry about medicaid rules and you have more flexibility.
This is very complicated and you need someone who understand financial planning for elders to help you figure out what is best. There may be a way to do a trust which would keep it out of consideration of your mother's assets for medicaid but there are very technical and specific rules to be considered. For example someone above said that improvement to her house would be sheltered. My (non-expert) understand is that it would be sheltered during her lifetime and her spouse's but when she dies, medicaid would expect to be reimbursed out of the proceeds from the sale of the condo. If I'm right, then the original statement was true but incomplete - and I could be wrong too. You get the idea...
posted by metahawk at 11:46 PM on August 23, 2019
On the other hand, if there is enough money and you are happy to spend on her care instead of saving for your sister and yourself, then you no longer have to worry about medicaid rules and you have more flexibility.
This is very complicated and you need someone who understand financial planning for elders to help you figure out what is best. There may be a way to do a trust which would keep it out of consideration of your mother's assets for medicaid but there are very technical and specific rules to be considered. For example someone above said that improvement to her house would be sheltered. My (non-expert) understand is that it would be sheltered during her lifetime and her spouse's but when she dies, medicaid would expect to be reimbursed out of the proceeds from the sale of the condo. If I'm right, then the original statement was true but incomplete - and I could be wrong too. You get the idea...
posted by metahawk at 11:46 PM on August 23, 2019
Definitely talk to a financial planner. Discuss your own situation with them. What are your own needs? How much are you putting away for your own retirement? How similar is your financial picture to your sister's? And so on.
posted by BibiRose at 6:28 AM on August 24, 2019 [3 favorites]
posted by BibiRose at 6:28 AM on August 24, 2019 [3 favorites]
She will begin drawing social security within the next few weeks and that will actually approximately double her income according to what she's been told at the SS office
I would hold off if possible, the longer you wait the more you get.
posted by DarlingBri at 7:15 AM on August 24, 2019 [2 favorites]
I would hold off if possible, the longer you wait the more you get.
posted by DarlingBri at 7:15 AM on August 24, 2019 [2 favorites]
I want to point out that OP didn't say her mom was planning to do remodeling; she said she wanted to. Knowing you want something but can't afford it is different from planning something you can't afford and is not in itself imprudent.
And someone who didn't do a great job budgeting while raising two kids as a single parent 20-30 years ago is not the same as being irresponsible with money; I don't think it's clear from the question that her mom couldn't manage her own money.
I agree that you still might not want to gift it to her if you are worried about her needing nursing care later; financially, there might be better ways to support her without giving her the cash, and I second that a financial adviser is the way to go, but I don't think the question indicates that mom can't be trusted with the money.
posted by gideonfrog at 7:49 AM on August 24, 2019 [3 favorites]
And someone who didn't do a great job budgeting while raising two kids as a single parent 20-30 years ago is not the same as being irresponsible with money; I don't think it's clear from the question that her mom couldn't manage her own money.
I agree that you still might not want to gift it to her if you are worried about her needing nursing care later; financially, there might be better ways to support her without giving her the cash, and I second that a financial adviser is the way to go, but I don't think the question indicates that mom can't be trusted with the money.
posted by gideonfrog at 7:49 AM on August 24, 2019 [3 favorites]
Per praemunire and DarlingBri, if the steps she's taken towards starting social security are not irrevocable, if you can support her financially now for a few years to delay starting it, it will greatly increase her social security payments.
posted by Candleman at 9:19 AM on August 24, 2019
posted by Candleman at 9:19 AM on August 24, 2019
There’s also no reason that remodeling couldn’t be done where your mom does the planning, and the two of you write the checks. You don’t have to give Mom the money first for that.
posted by Autumnheart at 11:07 AM on August 24, 2019 [2 favorites]
posted by Autumnheart at 11:07 AM on August 24, 2019 [2 favorites]
Yeah don't overlook the option of just paying for her stuff rather than actually "giving" her anything. Like just have her car payment bill sent to you if she has one, etc. Agree you should have a state-specific expert help you, though.
posted by fingersandtoes at 2:53 PM on August 24, 2019 [1 favorite]
posted by fingersandtoes at 2:53 PM on August 24, 2019 [1 favorite]
Paying for stuff is still considered a gift for tax purposes. Education and Medical expenses don't count as gifts, but remodeling a home she owns does.
posted by soelo at 6:13 PM on August 25, 2019
posted by soelo at 6:13 PM on August 25, 2019
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