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My mother is in pretty poor financial shape. She owes about $30k to credit cards and other misc. debt. My mom is 48 and has about $20K in a 401K plan. She is living with my grandmother who owns a house (worth about $140K) and has about $70K in the bank (mutuals, stocks, bonds, etc.). My mother pays most of the bills around the house including the taxes and any misc. expenses. (My grandmother is completely paranoid about losing her nest egg that she has refused to touch for the last 15 years.)

I've been trying to help my mom out and I've come up with a plan, but I believe it is fraught with many pitfalls (especially tax implications).

Here it is: I suggest that my grandmother sell her house to my mom. My mom takes out a mortgage on the house (currently there isn't one) and pays off her outstanding debt. Doing this, the interest on the debt would be tax-deductible - not to mention the interest would be at the going mortgage rate vs. 18% on credit cards.

I'd appreciate any help you can give on what the tax implications would be for both my mom and grandmother if they went through this transaction.

Finally, my grandmother is in poor health - she has diabetes, is overweight, etc. etc. etc. I realize that if she sells the house to my mother and she goes in to a nursing home and she runs out of her money, medicare?? (or is it medicaid) may think she was attempting to fraud the government by selling my mom the house.

Any suggestions or help would be greatly appreciated.

Desperate,
Not- so- Fast
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