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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121217  
Subject: 95 year old Grandmother her house Date: 2/16/2004 7:51 AM
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Hello All,
I'm a bit concerned for my parents and here is why. I have a 95 year old grandmother who is tough as nails! God bless her, she's like the energizer bunny. Its my fathers mother and he has one other sybling, my uncle. My mother has worked miracles trying to keep her (my grandmother) comfortably living in her own house with 24 hour home health car. Unfortunately the numbers were no longer working out, we had to sell her house and move poor ol' gram to an assisted living place. A tough descision but one that was made for us.

The next piece of the puzzle is this. My father is an engineer and therefore likes to do everything on his own, likes to figure things out. I am also an engineer and have the same natural instincts (but I know my limitations). For this reason I think he is a bit more reluctant to actively seak out profession estate planning help. My uncle (no engineer) is tragically bad with money issues. My conclusion, they need professional help. Granted they have a lawyer and a finacial guy. I'm nervous about the finacial guy as he had my granmother invested in tech stocks not 3 years ago. I'm no expert but that screams "bad idea".

Third piece of the puzzle: We just sold her house for $1,150,000.00.
The house was in my Dad and Uncle's name (that had been done maybe 20 yrs ago). She owned and signed over two other houses to her sons (also a long time ago). In order to pay for her care while she was still in her own house they remorgaged one of the other houses and there is a $400,000 note out there. These two other houses generate approximately $40,000/yr in rent. It costs $70,000 to have her in the assisted living.

What should my parents do to reduce the tax burden on the Sale of her house (papers haven't been passed yet, theres still time)? Where should they put the money that will ultimately be used to pay for the assisted living? Basically how the heck do they make sure they have enough to keep grammy going in the most efficient manner for the forseable future and if at all possible how do they try and have something left over for themselves since they themselves don't have much of a retirement to speak of.

Any help would be greatly appreciated!

Thanks a ton.
-Andy
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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69698 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/16/2004 9:17 AM
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What should my parents do to reduce the tax burden on the Sale of her house (papers haven't been passed yet, theres still time)?

There must be another house, because from what you've told us so far Granny didn't have a pot or a window, as far as real estate is concerned. She gave everything to her sons long ago. Lucky for her they weren't the type that tells old people to jump in a lake when they need some of their money back.

Your forebears have a gigantic mess on their hands, and it goes all the way back to when the real estate was transferred. Do the following for your own sanity:

1. See a lawyer and find out if you can publish some sort of notice so that no one can put property in your name without your consent. I'm not suggesting any evil intentions, but these people sound so daft when it comes to money that God alone knows what they might come up with.

2. The estate and tax planning train left the station years ago. Think 100 year flood. You're in the cleaning up the muck and trying to get life on a normal keel stage. They need professional help, and IMO if you get in the middle of this you need professional help of a different sort.

Best of luck.

Phil

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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69701 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/16/2004 10:20 AM
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Thanks a lot Phil although you paint an ugly picture. The houses were signed over to her sons although she had stipulated life tenancy in the house she lived in. She signed papers waving the life tenancy so that the big house could be sold and the proceeds used to pay for assisted living.

Its always been there intention to use every last penny for her care but it seemed to me that because the money will go to caring for an elderly person there must be some tax advantage that they can leverage. I suppose I have my rose colored glasses on though.

Thanks a ton.
-Andy

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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69720 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/16/2004 5:22 PM
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Andy,

Your instincts seem fine. You do need a professional (tax attorney is what I used) to sort out the estate options. There is plenty of time to get it sorted though it might have helped to do so sooner. Do it now and it will be better than it might have been.

John

PS. Some folks do not like planning for what is 'what happens when X dies". They generally like less the idea that the IRS will just step to the front of the line if planning is not sorted.


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69732 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/16/2004 11:15 PM
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The houses were signed over to her sons although she had stipulated life tenancy in the house she lived in. She signed papers waving the life tenancy so that the big house could be sold and the proceeds used to pay for assisted living.

I'm thinking out loud here, not working from any particular experience.

It seems to me that the life tenancy in the house would have some value, although at 95 years old, that might not be that much. But it still might allow the family to pay part of the sales proceeds to her for the life interest in the house. That would reduce the taxable portion to her children, who own the remainder interest.

I doubt if it would be that much, since I suspect you'd need to get into actuarial valuations. And for a 95 year old woman, actuarial life expectancy is probably something like 1 - 3 years.

With 20/20 hindsight, the problem was giving the house over to the children. Now she has significant deductible medical expenses, with little income against which to deduct them. And the children are stuck with the gain on the house sale, but no deductions.

Lesson to be learned: If you don't want to deal with the ownership of assets in your old age, give someone trusted a power of attorney to deal with them on your behalf. In many cases, the tax results are much better than giving the assets away to your heirs before your death. A living trust would be another way to accomplish the same purpose.

--Peter

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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69736 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/17/2004 8:42 AM
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Now she has significant deductible medical expenses, with little income against which to deduct them. And the children are stuck with the gain on the house sale, but no deductions.

This jogged my memory of what I'll call "medical dependents." If grandma would qualify as a dependent save the gross income test, the person who could claim her can claim the medical expenses paid for her on his Schedule A. I seem to recall that the multiple support situation is also addressed.

See "Whose Expenses Can I Deduct?" in Publication 502.

Phil

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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69748 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/17/2004 12:56 PM
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That sounds very promising! I'm constantly amazed at the expertise and willingness to share information on this board. Thank you very very much and please keep it coming.

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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69749 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/17/2004 1:06 PM
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http://www.irs.gov/pub/irs-pdf/p502.pdf

Wow! very very promising!

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69770 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/17/2004 8:39 PM
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This jogged my memory of what I'll call "medical dependents." If grandma would qualify as a dependent save the gross income test, the person who could claim her can claim the medical expenses paid for her on his Schedule A.

Good catch, Phil. The only question remaining is who is paying the medical expenses? Is grandma pay them from her remaining assets, or are the children picking them up? Ideally, the kids (or one of them) would be paying the expenses from the proceeds of the house sale, so at least someone would possibly take advantage of the medical expenses. If grandma is paying them herself, I don't think any of the children could claim the medical expenses on their own return.

--Peter

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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69790 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/18/2004 7:45 AM
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Ok, heres the deal. My Dad and my Uncle owne the houses as they were signed over to them about 20 years ago. The way I see it, and correct me if I'm wrong, any money used included the remorgaging of one of the houses, has gone to her care. Her care has been extensive as one might expect with a person of her age. For the past 4-5 years she has had 24 hour home health aid. This in addition to her medical expenses ie health care coverage ($$$), medication (and lots of it), hospital stays, etc has run in the many hundreds of thousands of dollars. She did have some assets other than her real estate but those were burned through relatively fast. The mortgage on the one house is about $400,000.00. So in summary, some of her expenses were paid for through the sale of bonds and securities and some has been paid for and will continue to be paid for through the remorgage of one house, the sale of the largest house, and rent generated by the remaining two houses (3 houses in all, one sold, one remoreged, two remaing are rental). Hopefully this adds additional details to spark more thought. Thank you so much!

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Author: andy383 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69791 of 121217
Subject: Re: 95 year old Grandmother her house Date: 2/18/2004 7:53 AM
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Oops, the second senice should read.
"The way I see it, and correct me if I'm wrong, any money used including the remorgaging of one of the houses that has gone to her care, was and is, as far as the IRS is concerned, is coming from my Dad and my Uncles "pocket".

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