lending money to DW's parents

[youbet]

The discussion seems to be missing OP's issue: How can the repayment of 83% of the pre-sale repairs from the IL's to OP be documented as repayment of a loan and not be considered a gift? This would be important to protect the IL's from problems with the so-called "look back" period for Medicaid if that need arises.

Example: MIL goes into memory care as a private pay client a year from now. After two years, the IL's stash from selling the house is depleted and MIL should be transferred to Medicaid funding. But there is a wrinkle....... the check written to OP looks like a gift within the five year "look back" period and Medicaid complications evolve.

We are now thinking we made a mistake by not getting some type of written agreement, just in case something happens to them, and even more importantly, so that the IRS could not look at that money as something they were trying to hide from their estate, were they forced to go on Medicaid in a nursing home.

Is that correct OP? Is that the issue you're trying to avoid?

 

[pb4uski]

The discussion seems to be missing OP's issue: How can the repayment of 83% of the pre-sale repairs from the IL's to OP be documented as repayment of a loan and not be considered a gift?...

By the memo we've been talking about that would be signed by the parties along with receipts for the repairs and also bank statements/cancelled checks evidencing that the OP paid for the repairs and was reimbursed from the sale proceeds so it was not a gift.

 

[youbet]

By the memo we've been talking about that would be signed by the parties along with receipts for the repairs and also bank statements/cancelled checks evidencing that the OP paid for the repairs and was reimbursed from the sale proceeds so it was not a gift.

Sorry if I misunderstood, but your and several other posts seemed to take a tone of ensuring that OP got paid back, which OP said was not going to be an issue. OP was primarily concerned about managing potential Medicaid issues by avoiding the transfer of money from the IL's appearing to be a gift because it is simply a check written to OP.

No doubt your suggestion that retaining all the necessary documentation to prove the check represents the repayment of a loan and not a gift would have a high probability of convincing the Medicaid folks. But I was just wondering if there might be some simpler way. Sitting in a Medicaid office reviewing receipts for various home repair items and labor wouldn't be my idea of a fun afternoon!

A few years back, we went through this process for MIL in Illinois and they were very, very thorough in their digging through MIL's financial records which we presented. I can imagine them asking for proof that the new carpet (now represented by a receipt written to OP) actually went into the joint owned property and not into OP's home. (Yes, Medicaid auditors can be those kind of suspicious folks because the world is full of people trying to hide money from them! In fact, that "hiding" process is a whole elder law sub-industry in some areas.)

So, just noodling if there might be a legal way to have the transfer of funds from the IL's to OP not appear directly in the records and therefore not be challenged. Not having a check written from the IL's to OP would certainly help. For example, the check is written from the closing institution to OP and the IL's proceeds are correspondingly reduced. Or something along those lines where the IL's financial records just don't show the transfer to OP. Doing things like this after the fact certainly makes it more complicated.

 

[Franklin]

One thing when we loan money to friends and relatives we must always keep in mind we may never see that money again. We hope too but that is a risk when we make a loan or pay back deal. I'm sure all will go fine in your case but you never know.

A big plus one. This happened to me with my in-laws and I learned a big lesson. Alway get things in writing. For starters make sure you have the details to support any tax return issues. Then make sure the siblings agree and understand the plan (in writing). Your family should be grateful you have shelled out the money to help. But for me after a series of years memories faded. So, when you loan monies to family be prepared (and not resentful) if you don't get it back. If you document it right at least you can claim a write-off. Based upon what you have done you seem to be in good form. And remember, it is likely an embarasement for your in-laws ( and DW) to be in that position. Don't let it cause harm in your family relationships, $20K aint worth it. You did the right thing IMHO.

 

[gwraigty]

The discussion seems to be missing OP's issue: How can the repayment of 83% of the pre-sale repairs from the IL's to OP be documented as repayment of a loan and not be considered a gift? This would be important to protect the IL's from problems with the so-called "look back" period for Medicaid if that need arises.

Example: MIL goes into memory care as a private pay client a year from now. After two years, the IL's stash from selling the house is depleted and MIL should be transferred to Medicaid funding. But there is a wrinkle....... the check written to OP looks like a gift within the five year "look back" period and Medicaid complications evolve.



Is that correct OP? Is that the issue you're trying to avoid?

If the IL's write the check, could they put a note on the memo line - repayment of loan for house repairs?

 

[youbet]

If the IL's write the check, could they put a note on the memo line - repayment of loan for house repairs?

I can't see where that could hurt. If the IL's, by luck of the draw, wound up with a less determined Medicaid auditor, maybe that would do it without bringing up the need for a full review of all the merchandise and labor receipts. And that would be a very good thing!

 

[BoodaGazelle]

>>>Will FIL be signing the closing papers or will your DW be signing for him as POA? If the latter, then I think you should be all set.


Not sure yet... probably they (ILs) will still sign.

 

[BoodaGazelle]

1. I am pretty sure we will get paid back, with or without a legal document, but wanted to hear the (as always) vigorous discussion!
2. I think it is unlikely (health wise) that either IL will live long enough to both draw down their assets from sale of house, and be forced into a Medicaid situation.


We are going to explore both formal (legal) and informal (letter of understanding) ideas...



Thanks again to all!


Mitch

 

[cathy63]

I had a thought. Could you record a lien on the home for the amount of the loan? Repayment of outstanding debts secured by the property would normally be handled as part of the escrow settlement process, so you would receive the loan repayment and your share of the proceeds from escrow and it would never pass through your in-laws' hands.

I don't know whether it's possible to file a lien against a property of which you are part owner, and I also have no idea whether a Medicaid audit could find this type of transfer or if they would question it. It does seem like a way for unscrupulous people to commit Medicaid fraud, and I can't imagine I'm the first one to notice that possibility, so my guess is they probably do know to look for it and you should still save all your documentation of the expenses.

 

[youbet]

2. I think it is unlikely (health wise) that either IL will live long enough to both draw down their assets from sale of house, and be forced into a Medicaid situation.

OK Mitch. You're welcome. BTW, I only took the path I did because you said in the OP:

and even more importantly, so that the IRS could not look at that money as something they were trying to hide from their estate, were they forced to go on Medicaid in a nursing home.

So I assumed that was where your concern was.

 

[BoodaGazelle]

Cathy63... if we do go with a legal loan, that is what we plan to do.

 

[gwraigty]

Adding to youbet's thoughts, some people can hang on for an amazingly long time, despite their ill health.