30 Jan Success Story of the Month – Rearranging Assets for Government Care Assistance
Mom has dementia that has resulted in the need for skilled care. Although mom owns a homestead, she now lives with daughter due to the dementia. Mom has no long-term care insurance. Mom’s only assets are the home (which she purchased for $200,000 – although it has a $150,000 mortgage), $25,000 in checking and savings and a car worth $5,000. Daughter has two teenagers and son has one. Mom (when she had capacity) signed a financial durable power of attorney which gave the agent the right to handle real estate transactions and gave broad gift-giving authority (most powers of attorney do not grant that power). Although the agent under the power of attorney was granted the ability to do a Ladybird deed (most powers of attorney do not), to protect the homestead for the children from a successful claim by the government against the home for reimbursement of Medicaid benefits advanced, son wants to purchase the home immediately as land values have increased significantly (older homes are being knocked down and newer ones are being built). The property tax statement shows a value of $300,000, but homes in the area are now being sold for $400,000. The children want to be treated equally while getting governmental assistance for her. A single person who is a Medicaid applicant can only have $2,000. Although the homestead does not count as a resource if there is an intent to return home, the cash from the sale would count. So how the goals would be achieved are as follows:
#1 – Is the house purchase valued at $3,000 but worth $400,000 an uncompensated transfer resulting in a transfer penalty?
Usually, the state looks at the property tax statements to determine fair market value although the rules do not state that. As a result, this was not a transfer penalty. Otherwise this would have resulted in a transfer penalty whereby there would have been more than two years of ineligibility.
#2 – Is there any capital gains tax on the home sale?
No. Mom has lived there two of the last five years and the gain was less than $250,000.
#3 – How could the property be sold if mom has dementia?
If the power of attorney is recorded with the county clerk where the property is located, then the agent can sell the property.
#4- If son profits by $100,000 since the property tax statement didn’t reflect the actual value of property in a certain area, how can son and daughter benefit equally?
First, after payment of home and car debt, the amount left is $220,000 ($400,000 – $25,000 – $150,000 – $5,000). Son has already profited by $100,000. Thus, daughter needs to benefit by $100,000 more than son out of the remaining $220,000.
A pre-need funeral contract including a burial space was purchased for mom since that is a non-countable resource for the amount of $20,000. This left $200,000 ($220,000 – $20,000).
Transfers to a UTMA (Uniform Transfers to Minors Act) or an irrevocable 529 are exceptions to Medicaid’s five year look-back period as Texas encourages a college education. As a result, $150,000 was directly transferred to UTMAs for the benefit of daughter’s two teenage children and $50,000 was transferred to an UTMA for son’s teenager. The $100,000 difference was to equalize how much each child got (since son bought the homestead based on the property tax statement which was $100,000 less than fair market value).
This was also made possible since mom’s power of attorney allowed broad gift-giving and self-dealing. Most powers of attorney do not have those provisions. As a result, the goals were achieved to get below the $2,000 countable resource limit for governmental assistance.
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