Ask Liz Weston

Get smart with your money

elder care

Q&A: This $1 house deal comes with elder care responsibility. It could get complicated

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Dear Liz: My father-in-law died recently. My mother-in-law is not well enough to live alone. My husband has a brother and a sister who would like my husband and me to buy my in-laws’ big, old home for $1, take care of my mother-in-law 24/7, and make 60 years’ worth of updates and repairs to the house. I see plenty of downsides to this arrangement, but no upside. Is there a way this deal can work for us, and not just for the other siblings?

Answer: The upside is that you would own the house. Although the home may not be in great shape, it presumably is an asset with some value. Whether it has enough value to be worthwhile, and whether you want to acquire it this way, are open questions.

If you and your husband buy the home for $1, the IRS will assume that your mother-in-law gave the two of you her property, and that can be problematic. The difference between the sale price of the home and its fair market value would be treated as a gift for gift tax purposes, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Your mother-in-law probably wouldn’t owe gift taxes, but she likely would have to file a gift tax return, and the gift would use up part of her lifetime gift and estate tax exemption.

If the home is a gift, you get her tax basis, as well. If instead she bequeathed the home to you and your husband in her will, the home would get a new, stepped-up value for tax purposes. How big a deal this might be depends on a lot of factors, including which state the home is in, so you’d need to consult a tax professional for details.

On the other hand, taking title to the home before your mother-in-law dies ensures that you and your husband actually get this asset. If it’s left in a will, your mother-in-law could change her mind and leave it in full or in part to someone else. If she doesn’t have a will, the house would be divided according to state law, which probably means your husband would have to share the asset with his siblings.

There are other aspects to consider. Taking care of another person can be costly: Caregivers spend nearly 20% of their personal income on out-of-pocket costs related to helping a loved one, according to an AARP study in 2019.

Also, more than half of family caregivers adjust their work hours by taking time off, reducing their hours or quitting altogether, AARP researchers found. In addition to losing income, they can lose promotions, job security and opportunities to save for retirement.

Caregiving also is associated with higher levels of stress, worse health and increased risk of death, according to the Centers for Disease Control.

Before you take on this task, consider hiring a geriatric care manager to help you assess your mother-in-law’s needs and discuss alternatives. You can get referrals from the Aging Life Care Assn.

Q&A: Don’t get creative with mom’s money

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Dear Liz: My 91-year-old mother lost her mobile home (and everything else) in a fire. I was able to put her in assisted living and she is actually doing better than when she was by herself. There was insurance money, which is now in a joint account, but considering her age, we have decided not to buy another place. Is there something I should do with this money? Friends have told me I should invest it. Her new home will keep her whether she pays or is (eventually) on Medicaid.

Answer: You should talk to an elder law attorney before doing anything with the money. Typically, your mom wouldn’t be able to get on Medicaid until she spends virtually everything she has. If she tries to avoid spending her money by transferring it improperly, the transfer could delay her eligibility. You can get referrals from the National Academy of Elder Law Attorneys.

Q&A: Consult a pro when planning elder care

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Dear Liz: My parents and I are discussing the best ways to protect their assets if one of them must live in a nursing home. Their home is paid off, and we were wondering if adding my name on the deed will secure the home from a mandatory sale for caregiving expenses. Please note, I am the only child. Also, I may want to live there someday to care for the other parent. Looking for the best options for saving money and avoiding inheritance tax for this asset.

Answer: Please consult an elder law attorney before you take any steps to “protect” assets because the wrong moves could come back to haunt you (and your parents).

It sounds like you’re contemplating the possibility that one of your parents may wind up on Medicaid, the government health program for the poor that covers nursing home costs. Medicaid has a very low asset limit and uses a “look back” period to discourage people from transferring money or property just so they can qualify. In most states, transfers made within 60 months of the application are examined and, if found to be in violation of the rules, used to determine a penalty period to prevent someone from qualifying for Medicaid coverage. In California, the look-back period is 30 months.

The state can attempt to recoup Medicaid costs from people’s estates by putting liens against their homes. You might see that as an “inheritance tax,” but inheritance taxes are taxes imposed in a few states on people who inherit money or property. Although all states try to recoup Medicaid costs, only six — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — have inheritance taxes, and these either exempt or give favorable rates to children who inherit.

Having your name added to the deed can cause problems, as well. Your creditors could go after the home if you’re sued, and you could lose a portion of the step up in tax basis you would get if you inherited the house instead. If you’re married and get divorced, your portion of your parents’ home could be considered a “marital asset” that has to be divided.

It’s great that you and your parents are trying to plan for long-term care, but you should seek out professional guidance.

Q&A: Mom’s 94; one son handles her money, another wants more access to it

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Dear Liz: I have two younger brothers, and the youngest was chosen as the executor of our widowed mother’s estate. The problem is that he doesn’t understand financials. Mom is 94. Her entire estate is invested in blue-chip stocks. The portfolio was carefully planned by our uncle and closely tracks the Dow Jones industrial average. With her present holdings, she has enough to live indefinitely in her nursing home.

Her portfolio is up 40% in the last two years, but my brother is worried that the stock market is going to crash. She could give me up to $15,000 a year, but he’s telling her $500 a month for each brother is good. I’m a retired electrical engineer and have managed contracts for the military worth many millions of dollars. Can I challenge my brother’s ability to manage our mother’s finances?

Answer: Sure, if you want to open up an all-out family war at this stage of your life. A better approach might be a collaborative one, in which the three brothers seek outside, expert advice to handle Mom’s affairs.

You might have been terrific at managing military contracts, but that doesn’t give you the background in taxes, estate planning and investment management that’s required in this situation. You may be overestimating how much her portfolio has grown — the Dow is up about 25% in the last two years, not 40% — while underestimating both the risk of a downturn and the effect of larger withdrawals.

Your brother, meanwhile, is understandably concerned about a portfolio that’s 100% invested in stocks. That would be a lot of risk, even if your mom had decades to ride out any downturn (which, obviously, she doesn’t). Remember that the stock market lost roughly half its value a decade ago and lost about 90% during the Great Depression.

If your mom’s portfolio could take such a hit and still produce enough for her to live on, then larger distributions might make sense. Maximizing the annual gift tax exclusion, which allows her to give away $15,000 a person without filing gift tax returns, may be desirable if her estate is worth more than $11 million and could be subject to estate taxes. If she’s not wealthy, though, distributing $45,000 each year to three of you could increase her risk of running out of money.

A fee-only financial planner could analyze that risk and recommend a prudent course of action. The planner also could help arrange the necessary documents that would allow your brother to manage your mom’s financial affairs. Right now, it’s not clear whether those are in place.

Your brother is not yet the executor, because your mother is still alive and executors are in charge of distributing an estate after someone dies. If she wants him to make decisions for her should she become incapacitated, she should give him her power of attorney or name him as the successor trustee of her living trust. Otherwise, he probably would need to go to court to be named conservator.

It may rankle that your mom put him in charge of her estate, rather than you. If he’s trustworthy, though, you should put aside the idea of challenging him for control, especially if your main motivation is to get your inheritance early. Instead, offer to assist him in finding the professional advice he needs to help your mother and work together to make sure her remaining years are as free of family drama as possible.

Q&A: Finding a place for Mom

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Dear Liz: Our mom is a recent widow, living in Seattle in a house that’s over 100 years old and worth about $1.2 million. She’s anxious about things going wrong, such as a recent sewer system repair to the tune of $10,000. She wants to have less uncertainty about her finances in general, live in a space that could support her aging in place and stay near her support system in that neighborhood.

All her children are 100% fine with her selling the house. We love the house, but we love our mother 1,000 times more. She and my siblings have talked about renting out the house and building a mother-in-law apartment on land near a home my sister owns, or remodeling a home my brother owns. I have suggested just selling and then buying a ready-to-move-in condo that would suit my Mom and her mobility.

I know she will be penalized when or if she sells the house, though. If she sold the house and wound up worse off, I’d never forgive myself. How can we find out more about her options?

Answer: Good news — your mom isn’t likely to owe any taxes on the sale of her home.

She lives in a community property state, so her entire house got a new value for tax purposes when your father died. If the home was worth $1.2 million when he died, that would be the value subtracted from the sale price to determine if there was any taxable profit. (In non-community property states, only his half would have gotten this “step up” in basis.)

Any increase in the home’s value since he died would probably be offset by the $250,000 home profit exemption available to homeowners who have lived in their primary residences for at least two of the past five years.

In addition to the options your family has already discussed, your mother also may want to explore “continuing care” communities that would allow her to live independently while providing assisted living or nursing home care as she ages.

These communities aren’t cheap. They tend to have hefty, up-front fees of $100,000 to $1 million in addition to monthly fees of $3,000 to $5,000 that may increase as her needs change, according to AARP. For those who can afford them, though, continuing care communities offer a potentially attractive way to provide future care without requiring a late-in-life move.

She’ll have the most options if she moves to a community while she’s still relatively healthy. AARP has more information about how to evaluate and choose a continuing care retirement community.

Q&A: To help elderly dad hold off mooching adult kids, call in the experts

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Dear Liz: My dad, age 90, needs personal care and I am trying to get him to move out of his house to a senior residential place. He is in agreement, but it is taking a long time to make this happen. He owns his home free and clear and, along with the sale of his home, has enough financial assets to cover these costs.

The problem is my two sisters’ husbands, who overspend and are in debt. These two guys continue to pressure my sisters to ask my dad for money for such things as their mortgages, expenses for their children and credit card debt. My sisters are not just starting out — they are in their 50s! Not only that, when I ask them for help with our dad, they flake out on me. I’ve told them that the financial assistance can’t continue because Dad will need his money to pay for his care.

I feel that my sisters’ and their husbands’ behavior is senior financial abuse. I read that this situation happens a lot in families, where the kids will milk an elderly, wealthy, sympathetic parent or grandparent, sometimes draining their savings. Or one dysfunctional sibling with take financial advantage of a parent, while other siblings in the family struggle with making ends meet. In our family, both my sisters have children, so my dad feels a soft spot for helping them out. I am single, no children, and I am treated differently. I do struggle to make ends meet. My dad is sometimes even reluctant to reimburse me $20 for gas that I spend driving him around and doing shopping and errands.

I’m trying to remain on good terms with my sisters but it is getting tough. Is there any financial advice or references you can give in my situation?

Answer: You’re right that most financial abuse of the elderly is committed by people close to the person, typically family, friends or caregivers. The toll isn’t small, either. A survey by Allianz Life Insurance Company found that the average victim lost $30,000 and 1 in 10 lost more than $100,000.

Family members may not see what they’re doing as abuse. They may think that they “deserve” the money or that it’s some kind of advance on a future inheritance. They also know that Dad just can’t say no and will continue to press him for money as long as they’re allowed to do so.

You and your dad should consult an elder law attorney to discuss ways your dad can be protected against predators. You can get referrals from the National Assn. of Elder Law Attorneys at naela.org, and the attorney can discuss your options.

One obvious solution would be for Dad to hand over his checkbook to you, which would give you the unpleasant job of standing up to your brothers-in-law. You’re certainly in a better position to do so than your elderly father, but he may not be willing to give up control or you may not want the job.

Another option is hiring third parties. Daily money managers provide personal finance and bookkeeping services to elderly clients. They can keep a watchful eye on transactions and spot signs of fraud. You can get referrals from the the American Assn. of Daily Money Managers at aadmm.com. Hiring a geriatric care manager also could be a good move. The manager could assess your father’s health, living and financial situations and help craft a plan to help him move forward. Referrals are available from the Aging Life Care Assn. at aginglifecare.org.