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Artificial Impovershment of Parents Not a Medicaid Solution

Posted by Keith on May 23, 2007 at 5:42 pm  

Keith,

For medical reason I had to have my father’s house deeded over to me. I have talked to two accountants who have told me 1) I have my father’s tax base and 2) I have a new tax base. What say you mate.

Bill


BILL,

I have been answering financial questions for nearly 30 years and I strongly suspect that what you did “for health reasons” was to transfer your father’s house out of his estate so that he could qualify for Medicaid (called ACCESS in Arizona), and receive taxpayer-funded long-term care.

If I’m right — and I’ll bet you a Global Adventure coffee mug I am — When you did this you cheated the rest of us taxpayers. You basically said, “I don’t want my dad to spend my inheritance, so we’ll just transfer his assets and put him on welfare. Let someone else pay his long-term-care bills.” Great plan. You get the inheritance. We get the shaft.

Well, my friend, it is a double-edged sword. First, amounts transfered to individuals within three years of claiming benefits, and transfers to trusts within five years of claiming benefits, must be included in the calculation of the recipient’s net worth. There are seriou, even criminal, penalties for non-compliance.

What’s more, you would have enjoyed a date-of-death cost basis if your father had kept the home until he died by using his homestead exemption, but now you have his original cost basis, plus the cost of any improvements he made. What’s more, it is not your primary residence, I presume. Therefore, you will pay capital gains tax on the difference between your father’s basis and the net selling price.

–Keith


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