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  • Investing for Parents end of life

    Any thoughts on best course for my siblings and I to consider pooling some of our money together to have in place for our parents at end of life. They are debt free and without whole life insurance. As they are meeting with estate planning attorney to set up documents & 'get house out of their name' I am considering the possibility that end of life expenses wipes out all of their savings leaving us children in a position to fund their needs.

    My thought was to pool $20-$40K among the 4 of us children and invest for the next 5-10y or when they run out of their own assets. I'm curious if this makes sense or if their is an alternative strategy that would be wiser. Could such an investment be done amongst a group of siblings or would it have to be set up as a taxable account through one individual?

  • #2
    Why are you getting house out of their name?
    The question is what is the objective etc. Not enough information. Typically, a house is exempt from any programs and best with a step up tax wise. It seems you have solutions in mind before identifying the goals and problems.,

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    • #3
      Inheritance of a house is generally best if it happens after death as the house will be priced at its market value at the time of death. This saves on taxes when the house is sold.

      If you transfer ownership prior to death, there will be taxes owed on the sale price minus the cost basis.

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      • #4
        It seems like you and your siblings should just be saving as usual for retirement and if it turns out your parents need help in the future, you will have savings to help support them. I don’t think you would be investing the assets much differently whether for your future or for your parents. And since money is fungible, does it matter if it’s in an account with your name or theirs?

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        • #5
          Originally posted by Tim View Post
          Why are you getting house out of their name?
          The question is what is the objective etc. Not enough information. Typically, a house is exempt from any programs and best with a step up tax wise. It seems you have solutions in mind before identifying the goals and problems.,
          I have no idea why and was not present for their initial attorney meeting. Based on reference from their first meeting with estate planning attorney about a 7y look back, my presumption is the strategy is Medicaid Planning. I'm not familiar with this process or different trusts that would be beneficial in this setting, or not. I am putting blind trust in the expertise of the attorney who is also a CPA with impression that creating a trust would help shelter them from loosing their home to cover higher long-term care expenses in the future.

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          • #6
            The parents s/qualify for a $500k LTCG tax exemption if they sell the house. They stand to lose this in the estate planning scenario (of which we know very little). Sounds like the attorney may be doing Medicaid planning instead. If that is the case, you need to look at this from a different perspective and absolutely need to be at the meetings. Agree with the above thoughts on stepped-up basis, but that may not be the goal here. And we don't have any info on whether that is even an issue.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Originally posted by Bmac View Post
              And since money is fungible, does it matter if it’s in an account with your name or theirs?
              Oh, yes, it matters! You want that money in YOUR name, not theirs! That way it doesn’t count as part of their assets if one or both of them needs a nursing home or memory care and they need to deplete their assets to qualify for Medicaid. Believe me, even as a “rich doctor” you will find paying 100% of that bill tough sledding. $10,000/month x 12 months x 10 years - you do the math. No one likes having to spend down to qualify for Medicaid, but it is often necessary, so whose name those assets sit under makes a big difference.

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              • #8
                Originally posted by jfoxcpacfp View Post
                The parents s/qualify for a $500k LTCG tax exemption if they sell the house. They stand to lose this in the estate planning scenario (of which we know very little). Sounds like the attorney may be doing Medicaid planning instead. If that is the case, you need to look at this from a different perspective and absolutely need to be at the meetings. Agree with the above thoughts on stepped-up basis, but that may not be the goal here. And we don't have any info on whether that is even an issue.
                over my head... can you break it down for me or provide me with background reference. Medicaid planning was never verbalized but I am guessing that is the strategy. I can ask that directly or if there is another strategy but I suspect I will get the usual response that she is an esq. cpa, estate planning, elder law attorney, she is not a financial advisor. The vast majority of their savings are in cash/CDs and with some annuities. I suppose most simply if they give/gift away their accounts out of their name then they would qualify for additional services at end of life. My supposition is that estate planning attorney would be the expert to create a trust to serve the same purpose I suppose.

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                • #9
                  Originally posted by artemis View Post

                  Oh, yes, it matters! You want that money in YOUR name, not theirs! That way it doesn’t count as part of their assets if one or both of them needs a nursing home or memory care and they need to deplete their assets to qualify for Medicaid. Believe me, even as a “rich doctor” you will find paying 100% of that bill tough sledding. $10,000/month x 12 months x 10 years - you do the math. No one likes having to spend down to qualify for Medicaid, but it is often necessary, so whose name those assets sit under makes a big difference.
                  Everyone is aware of the need for a will.
                  Everyone is aware of the potential need for estate planning.
                  What most ignore is the need for End of Life planning. How large is that “tax” potentially?
                  It is up to a 100% tax. The look back is 5 years and can destroy all your other plans.

                  You need to be “all in” or “all out” . Medicare/Medicaid planning and estate planning are opposing goals. Estate is maximizing assets to heirs, the other is no assets.
                  An elder law attorney focuses on the former and and estate attorney focuses on the latter.
                  Your plan needs to be looked at from both points of view.

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                  • #10
                    Yes, far too many are unaware of the 5-year look back rule when it comes to spending down to Medicaid levels. It’s not as simple as “we’ll just give you the house.”

                    Fortunately most older people don’t ever need to spend down to Medicaid levels, but a few do - and in that case, the kids are just going to have to reconcile themselves to the reality that they won’t have an inheritance. But that is preferable to having to pay the cost of an extended nursing home stay!

                    The best choice is probably to do ordinary estate planning with the understanding that a slowly progressive dementia or a severe stroke could destroy all those plans. Fortunately as physicians we don’t actually NEED an inheritance. We just need to make sure our aging parents’ needs don’t bankrupt us as well as them.

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                    • #11
                      Originally posted by artemis View Post
                      Yes, far too many are unaware of the 5-year look back rule when it comes to spending down to Medicaid levels. It’s not as simple as “we’ll just give you the house.”

                      Fortunately most older people don’t ever need to spend down to Medicaid levels, but a few do - and in that case, the kids are just going to have to reconcile themselves to the reality that they won’t have an inheritance. But that is preferable to having to pay the cost of an extended nursing home stay!

                      The best choice is probably to do ordinary estate planning with the understanding that a slowly progressive dementia or a severe stroke could destroy all those plans. Fortunately as physicians we don’t actually NEED an inheritance. We just need to make sure our aging parents’ needs don’t bankrupt us as well as them.
                      It sounds bad, but not intended. The plan gets complicated for a married couple. The surviving spouse is a care giver and financial planner and has tough choices.
                      If you could plan a fast painless cheap end of life, it would be a blessing. As physicians, you all deal with the DNR in work, do you deal with it in life is the question you need to ask.

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                      • #12
                        Originally posted by artemis View Post
                        Yes, far too many are unaware of the 5-year look back rule when it comes to spending down to Medicaid levels. It’s not as simple as “we’ll just give you the house.”

                        Fortunately most older people don’t ever need to spend down to Medicaid levels, but a few do - and in that case, the kids are just going to have to reconcile themselves to the reality that they won’t have an inheritance. But that is preferable to having to pay the cost of an extended nursing home stay!

                        The best choice is probably to do ordinary estate planning with the understanding that a slowly progressive dementia or a severe stroke could destroy all those plans. Fortunately as physicians we don’t actually NEED an inheritance. We just need to make sure our aging parents’ needs don’t bankrupt us as well as them.
                        Exactly.

                        We have two mothers (86 and 82) that have dwindled and dwindling assets, respectively. Both have been uncooperative in any planning. One went bust and is dependent on her children to make up the difference between a small social security benefit and smaller pension and her modest living expenses (about $38,000 per year). The other is very private about her financial condition but appears to be spending money on jewelry and "investment gemstones" like a drunken sailor. Both have old school long term care insurance, fortunately, that should help ease the financial transition to a dependent state. Our collective goal is not to inherit funds but to limit any financial damage to us due to their financial condition.

                        One thing I have learned from both of them, and our fathers, is that the negative effect of aging on making sound financial decisions is real. Three of the four of the parents were reasonably prudent about money throughout their lives. Into their 80's, they all lost some of their judgment, in one way or another, and suffered from the consequences. MY MIL stopped making payment on the life insurance policy on my FIL six months before he died. This was intended to be her retirement nest egg. My father (90) got sucked into a pyramid scheme for DME for $25k and is an avid stock trader (previously buy-and-hold guy). It is a cautionary tale for those of us who plan to live into our 80's!

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                        • #13
                          Originally posted by VagabondMD View Post
                          One thing I have learned from both of them, and our fathers, is that the negative effect of aging on making sound financial decisions is real. Three of the four of the parents were reasonably prudent about money throughout their lives. Into their 80's, they all lost some of their judgment, in one way or another, and suffered from the consequences. MY MIL stopped making payment on the life insurance policy on my FIL six months before he died. This was intended to be her retirement nest egg. My father (90) got sucked into a pyramid scheme for DME for $25k and is an avid stock trader (previously buy-and-hold guy). It is a cautionary tale for those of us who plan to live into our 80's!
                          That's another excellent reason for the OP and his siblings to keep funds under their names rather than just gifting the money to his parents. Not only does that insulate the funds from Medicaid, it helps mitigate the possibility of a parent with failing cognition wasting the money.

                          OP, I like the idea of a pooled investment fund set up by you and your siblings to cover your parents' future needs. I don't know if it is possible for all 4 of you to be co-owners of such an account, but that is something any good brokerage could answer for you. Or you could each set up your own individual "Money for Mom and Dad" brokerage account and invest individually; that might be safer as well as simpler. If the money is needed, you have it; if not, it's yours to add to your other investments after your parents have both passed. Medicaid can't touch a penny of it, as it was never your parents' money but yours.

                          And for God's sake, tell your parents you are far more concerned about them managing their estate to meet their own needs than you are about receiving an inheritance! Too many older people beggar themselves trying to continue to provide as much as possible for "kids" who are grown adults and can meet their own needs just fine.
                          Last edited by artemis; 02-17-2022, 09:20 AM.

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                          • #14
                            "It is a cautionary tale for those of us who plan to live into our 80's!"
                            Not many plan short of 80. Just saying.

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