FAQ - Tax Planning

I am WECTU's Eldercare Answerman. My FAQs discuss many of the primary issues that we have to address when assisting our loved ones as they age. For more indepth topical information, please check out my Blog, my Podcasts and my Elder Care Search Wizard.


If you have a specific request regarding a topic that I have not addressed, please use the form at the bottom of this page to contact us with your request.


1 – My husband and I are in our 70s. We just gave most of our savings equal to $150,000 to our only daughter. Will we owe any gift taxes also will this transfer of assets impact our family if we have to go to a nursing home?

This is always an area of great confusion. There are different rules of law dealing with gift giving and transfers in contravention of the Medicaid rules. Each year you can make an annual gift of $14,000 each to your daughter under what is known as the annual gift exclusion. There are no tax consequences when making the gift nor is your daughter taxed when receiving the gift. She could be taxed if she sells an item such as a stock which is appreciated in value from the time of its purchase. The remaining $122,000 of your gift is subject to the federal gift tax exemption which totals $5,490,000 for each of you. A gift tax return must be filed in this case. Yet no gift tax will be due. Given the fact that both you and your wife have an aggregate total of $10,980,000 of gift giving capacity, there is little need to worry on your part.

There is an issue with regard to this asset transfer to your daughter. It is deemed to be a transfer for less than fair  market value. It is subject to the look back period of five years under the current Medicaid rules. If either you or your wife go to a nursing home within the five year period subsequent to the gift and apply for medical assistance then you will be deemed ineligible to receive the Medicaid benefit for a protracted period of time. As you can see this single transaction will impact both you and your family in different ways depending on what happens to you in the future. It is always wise to discuss a gifting strategy with a knowledgeable eldercare specialists.

Related blogs: Medicaid Annuity , Power Of Attorney

Related podcasts: Gift Issues , Single Person Medicaid Issues , Medicaid Protections for a Healthy Spouse


2 - I’ve been trying to keep my mom in her home. She is a nice condominium but is in need of home healthcare aids. I’ve been contributing approximately $1500 per month to pay part of the cost of these healthcare aids. Am I my entitled to any tax benefits?

There are two benefits to you may be able to utilize on your personal tax return. The first is a medical expense deduction. Given the fact of the close familial relationship in this case with your mother, you would be entitled to take advantage of the $18,000 that you have been spending each year for healthcare aids. You should consult with a tax accountant to make certain whether the entire amount is totally income tax deductible or just a portion thereof. Another tax benefit that may be available to you is to characterize your mother as a dependent on your income tax return. It would require you to pay over one half of their overall needs during a calendar year. Again a top-quality accountant could help you determine whether you are eligible to take your mother as a dependent during any given calendar year.

Related blogs: Medical Expense Deductions

Related podcasts: Eldercare Tax Issues


3 - To keep my mom in her home, I have been paying a home healthcare aid to assist her on a daily basis. Am I eligible for any tax breaks for these payments?

Your mother is a related party. If you are paying more than 50% of her cost of living then you can take her as a dependent on your income tax return. The payments to the healthcare aid will be eligible as a medical expense deduction on your income tax return. You should discuss this matter further with your accountant in order to ascertain the financial benefit to which you are entitled.

Related blogs: Medical Expense Deductions , Care Management Agreement

Related podcasts: Eldercare Tax Issues


4 - I have a nice size estate a good deal of it comprised of a large IRA rollover account. My children are in good economic shape and I would like to leave a portion of my estate to a few charities. What are some of the tax considerations that impact my estate planning desires?

Unless your estate exceeds $5,490,000 in 2017, then you have no worries about a federal estate tax liability. Each state has their own specific estate and inheritance tax laws. It is necessary to speak to an estate tax lawyer in your state of residency to determine the impact on your state estate tax situation. Since you have a sizable IRA account, it makes sense to focus on the income tax ramifications of your philanthropy. It is always in one’s best interest to designate a charity as one of the beneficiaries of your retirement account. In this way, you avoid both any estate and income tax liability. Another benefit is that if you wish to remove the charity or change the amount that they will receive, then it is much easier to accomplish this task by making the change to a beneficiary designation than amending a trust or writing a codicil to your will.

Related blogs:

Related podcasts: Eldercare Tax Issues


5 - I want to make a gift to my church of about $200,000. I am reluctant to do so at this time since I may need the funds or at least the income from the funds in the future. I’m 76 years old and in relatively good health. Is there a viable option for me so that I can bestow the benefit of these funds to my church during my lifetime?

There is a great estate planning tool to which you can avail yourself. It is known as a charitable remainder trust. This estate planning vehicle allows you to make a gift to either a trust that will ultimately pass to the church when you die or directly to the church. In both cases you will retain the right to the income [usually 4 to 6%] from the trust for the remainder of your lifetime. When you die the balance of these assets will pass directly to your stated beneficiary in this case the church. If you create your own charitable remainder trust, then you can reserve the right to change the beneficiary. If you were to need to enter a long-term care facility then these assets may not be deemed to be an eligible resource and subject to the complicated Medicaid rules.

Related blogs:

Related podcasts: Gift Issues , Single Person Medicaid Issues


6 - I was always under the impression that my IRA account would pass to my heirs tax-free. I have heard from a friend that this large account will be subject to multiple taxes?

At the time of your death, the full value of the IRA account is includable in your estate for federal estate tax purposes. Keep in mind that estates under $5,490,000 are not subject to federal estate tax liability. The IRA other than a Roth IRA account will be subject to an income tax liability since taxes have never been paid on the IRA account through the date of your death. The funds can in certain cases be rolled over to the beneficiary of the estate in which case they can pay income tax over a prolonged period of time. This is known as a stretch IRA account. At the very least they should be able to stretch the tax liability over at least a five-year period.

Related blogs: Beneficiary Designation

Related podcasts: Beneficiary Designation


7 - My father has a wonderful coin collection. He is had it for many years and it is worth quite a bit of money. I am considering whether I should sell it now or is it better to wait until he passes away to sell it?

Assets such as art antiques and collectibles such as a coin collection will be included in your father’s estate he dies. One of the benefits of this situation is that the assets in this case the coin collection will receive a step up in cost basis to the fair market value of this collection on his date of death. When you sell the coin collection subsequent to the date of his death then the proceeds that you receive up to the new cost basis will not be subject to long-term capital gains taxes. Collectibles are subject to the highest capital gains tax of 28%. If possible it is in your family’s best interest to retain the collection until your father passes away so that it will not be subject to the nefarious 28% capital gains tax liability.

Related blogs:

Related podcasts:


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