Raising a Grandchild (Part 1)
It is estimated that 2.7 million grandparents are raising their minor grandchildren in their homes. The reasons for this are varied. The birth parents may be unable to care for their children because of physical or mental illness, substance abuse, incarceration, homelessness, poverty, or unemployment. In many cases the grandparents didn’t expect to be raising their grandchildren or at least expected it to be on a temporary basis that over time came to be permanent. The balance of raising a young child while at the same time addressing the issues of aging and long term care presents unique issues that must be addressed to protect both grandparent and grandchild. The first issue is who will care for the grandchild if the grandparent should pass away or become unable to care for the grandchild if, for example, he or she requires nursing home care. As I stated above, the grandchild often moves in with the grandparent on a temporary basis. As time goes by the grandparent becomes the de facto parent, however, there is no legal designation as such. If the grandparent dies (or otherwise can no longer care for the grandchild), provided the
The Hidden Costs of Transferring Your Home (Part 2)
In my post last week I told you about Joe’s call concerning the sale of his mother’s home. A few years ago she went to an attorney to prepare a deed transferring the home to Joe and his sister, but keeping a life estate for herself. A life estate is a legal right to live in the home even though it was now owned by her children. She did this because she wanted to protect it from being spent towards nursing home care. As I explained last week when the home is sold the life estate does equate to an ownership interest for purposes of calculating the capital gains tax, in her case about 25%. The other 75% is considered owned by Joe and his sister. Joe estimated the gain on the sale to be about $250,000. Mom can exclude up to $250,000 of gain on her share so she would not owe tax on her one quarter share, however, Joe and his sister didn’t live in the home so ¾ of the gain would be subject to tax. They will owe about $50,000 in capital gains tax depending on their tax bracket. I could tell Joe was getting
The Hidden Cost of Transferring Your Home (Part 1)
Joe sounded upset when he called us. His mother wanted to protect her home from the cost of long term care so a few years ago she transferred the house to Joe and his sister, keeping a life estate for herself. Now they want to sell the home because his mom needs nursing home care. We asked a few more questions and Joe explained that his mom has very few other assets, maybe about $10,000. He also said the home transfer occurred more than 5 years ago so it falls outside of Medicaid’s 5 year look back, meaning the transfer would not create a Medicaid penalty. Joe’s hope was that the liquid assets would cover whatever private pay amount that might be owed to the nursing home before transitioning to Medicaid. The proceeds from the sale would then be the inheritance that Joe’s mom wanted to provide for her children. So what was getting Joe upset? He had a conversation with a friend who said he would have to pay capital gains tax on the sale proceeds. He didn’t quite understand why that could be true since Mom had lived in the home
New VA Rules Effective 10/18/18 (Part 3)
This week’s post is my third in a three part series regarding the new changes to the VA Aid and Attendance program. As I stated last week, the biggest focus will be on a new 3 year look back and penalty for transfer of assets. That does in many cases take away the ability to qualify immediately after transferring assets, however, not in all cases. Strategies similar to ones we use in crisis Medicaid planning cases will still be available. Converting countable assets to noncountable ones can help qualify an applicant without waiting out the penalty. These include buying a bigger home or purchasing a car. Something called “half a loaf planning” can also sometimes be an option. Provided the amount to be transferred results in a penalty that is less than 3 years it is possible to calculate an optimum transfer amount such that the excess amount of assets over the net worth limit that remain in the Veteran’s name will be used to cover the time frame of the penalty. This will maximize the amount that can be transferred by determining the earliest possible month that the Veteran (or widowed spouse) can qualify for the VA
New VA Rules Effective 10/18/18 (Part 2)
In last week’s post, I reviewed some major changes to the VA Aid and Attendance program. The one that gets the most attention for obvious reasons is the imposition of a 3 year look back and penalty period. This will restrict immediate access to the benefit for many veterans, at least those that don’t plan ahead. There are, however, other changes that I believe will potentially make it easier to qualify for this tax free pension. Unreimbursed medical expenses remain important in both qualifying for the VA benefit as well as in the determination of how much of a pension the applicant can secure. These expenses are still subtracted from gross income in order to determine income for VA purposes (IVAP), which then determines the amount of a pension the applicant can receive. Medical expenses are also now relevant to the net worth calculation. As I explained last week assets are added to annual income to calculate net worth, which must total no more than $123,600 (in 2018) to be eligible for the VA pension. Unreimbursed medical expenses, however, can also be used to reduce the income when calculating net worth, although if expenses exceed income the excess expenses
New VA Rules Effective 10/18/18 (Part 1)
I have written many times in the past several years about possible rules changes to the VA Aid and Attendance pension program, which provides additional income to aging veterans and their spouses who need long term care. Well, those changes are finally here and with almost no warning. The new rules only announced late last month become effective October 18, 2018 so for some there may be an opportunity to act quickly in the next 10 days to preserve eligibility under the old rules. Let’s go over the highlights. The change that will have the biggest impact is the imposition of a 3 year look back period. Similar to Medicaid (which has a 5 year look back) the VA will now look back 3 years from the date of the application for benefits. Any transfers for less than fair value will be subject to a penalty or period of ineligibility for benefits, again, similar to Medicaid. The penalty will be calculated by taking the amount transferred and divide by the maximum pension for Aid and Attendance, currently $2169. This divisor is much lower than Medicaid’s number which will result in a greater penalty for the same amount transferred, however,