Hi all -

My Dad is 73 and has never been good with money. In fact, the reason I'm so neurotic about finances is a reaction to his lack of planning.

Anyway - he has about $70k in a conservative investment vehicle. This is his only savings besides a modest savings account. Otherwise he gets by on pay from part time job (30 hours per week), social security, and an alimony payment from my Mom. He knows he is not the best financial shape and there are some low income housing options for senior citizens in the Boston area that he knows he will likely want to live in (my grandmother did and she loved it). Anyway, there are income limits and they go back 5 years. As such, he has asked me to put the investment in my name, so hopefully in 5 years he will be eligible for one of these places. It would still be his money and I'd let him use it however he sees fit. It would obviously be a tax liability for me and as such, he'd pay for my additional taxes.

Does this seem reasonable? Am I missing anything?

Thanks!

-- As a side note, it really is scary to me to think his retirement savings are so low, but I'm learning from his mistakes!

Between Social Security, his job, his alimony, and $70k in savings, your dad should have more than enough income to meet his needs. He should spend his own money on housing, and if you're fortunate enough to still have him around when the money eventually runs out and he has to quit his job, then he will be a perfect candidate for subsidized housing.

He's 73 years old - this is precisely what his retirement savings are for. He should use his own money to provide his own care, as much as he's able, rather than seeking to hoard it and mooch off taxpayers.

You can do whatever you want to do, but your dad is basically asking you to help him defraud the system and get taxpayers to bail him out for his profligacy. It's deeply immoral.

The income limits are there for a reason. It's welfare. When people who don't need welfare collect it anyway, it drives up the costs for everyone, and potentially excludes individuals who actually need the welfare.

It's a valid point, though I think these things are never so black and white.

A lot of senior housing fall into 2 categories, low income and others are very expensive. Even with this savings, I think my Dad would be able to afford a more expensive option for probably less than 2 years and then end up in low income anyway...

Kombat did a good job of chastising you so I won't even go there.

Putting the money in your name will be a gift and that is taxable. It is over the annual limit I believe but it should fall within the lifetime exclusion. You will want to make sure the transaction is properly documented. Similarly, when he reimburses you for the extra taxes each year that is also a gift, though probably small.

You will also want to look carefully at any clawback provisions for that 5 year income lookback period. Those kinds of provisions are set up specifically to thwart the kind of thing you are trying to do so they could have some catches that get in the way of your efforts.

Finally, if you have an agreement with your father (even verbal) that the money is still his and that he is entitled to the income then strictly speaking he should list that income when applying for benefits. Not doing so could be perjury and depending on the circumstances and the political winds you could be exposing yourself to serious problems later. It's not something that happens often now but I'd expect enforcement of income limits to get much tougher as government money gets tight over the next couple of decades. Please go into this with open eyes.

I won't go into the moral issue here. You should, however, do a lot more investigating before agreeing to do this.

1) The retirement facility he wants: do they actually do a physical move from full-pay to subsidized pay living quarters if a resident's funds run out? I ask, because most don't. Most facilities here in Northern CA prefer admitting full-pay residents, then when the personal funds run out, will bill Medicaid (called MediCal here) for the monthly fees. But residents don't physically get moved around, not until they start needing assisted living or full-service nursing care.

2) Medicare/Medicaid used to look back 3 yrs. Then it was changed to 5 yrs, and I expect it very possible it will change again, probably to a 7 yr limit. This is the federal law, and you should note that STATE laws can and do vary. Some states change to match federal law, and some don't. The 'clawback' time periods can also differ between states and federal rules. Legislators often make these retroactive for a 1 year previous date, meaning you might agree to do this for your father but get caught because a new law was passed that included the time period when you did the transaction.

3) The $70K account is so small it is not an issue for estate tax planning. The maximum allowed in total (lifetime) remains $1M. Your father must file the gift form with the IRS on his next tax return if he gives you the full $70K, for the reason below.

The $13K/annual gift tax exclusion can be aggregated for up to five years of giving; e.g., your father can donate up to $65K to you, in any one year, WITHOUT having to file a gift tax return with his usual IRS return.

Actually the lifetime exclusion is currently $5.12 million for 2012. The father would have to file a gift tax return which is separate (not a part of) from his normal income tax return.


This is wrong. There are some circumstances in which you can allocate the gifts to 5 separate years and thereby use the $13K annual exclusion for each of the years (most commonly is gifts to qualified tuition programs like 529 accounts), but you still have to file the gift tax return to make the election. This is not one of those circumstances.

This is very interesting. So if the OP's Dad were to gift 13K a year it would be legal? What kind of taxes would one have to pay for such a gift?

No tax at all, unless the particular state has one. However, the annual exclusion of $13,000 and lifetime exclusion are for gift and estate tax purposes. They are not excluded when looking at assets (or transfers within the 5 year look back period) for Medicaid, etc. The OP's father can't gift him $13000 each year to get those assets out of the reach of Medicaid. Plus, if it is a transfer in name only, as the OP suggests, (still to be used for the father's benefit and the father pays the tax) it isn't really a gift, and will not qualify for the annual exclusion, its just attempted fraud.

To be fair, it is not attempted fraud if the law allows one to gift away all assets and then apply for benefits 5 years later. That's what the OP is trying to do.

I take issue with the ethics here and I think the OP must be very careful to document the transactions. But it sounds as though what he proposes could be legal if done correctly. It would only be attempted fraud if they did not follow the law.

No, he isn't trying to gift the property. He's trying to hide assets. A gift requires donative intent. The gift has to irrevocably become the property of the donee to do whatever he/she wants to do with it. The OP clearly stated it would still be the father's money. Therefore, there is no donative intent.

An implicit agreement that it still is the father's money defeats any claim that it is a gift.

That's kind of what I was getting at with my original warning.

I'm a little uncomfortable with the ethics here. But in the interest of being constructive, the might ask a qualified advisor in his state "Is there a legal way for my father to give me his assets now in exchange for a negotiated level of support over the next 5 years after which the money is completely mine with no obligations whatsoever to either party?" I suspect there is...

That, I think could be done. It would be like a private annuity. Although to be a transfer for full And adequate consideration and thus a valid transfer to Medicaid purposes, the payment stream would need to be calculated with the IRS tables and interest rates. The payments over five years will be more than the initial amount transferred (though not much with interest rates so low). The payment stream would also be available for Medicaid.

It would also like cause a tax headache. Wealthy individuals (who cam afford to pay for the tax headache) actually do this frequently now as an estate planning tool. They transfer a large amount to their children in exchange for the payment stream, which is relatively low given the interest rates. The thought is that the assets will appreciate at a higher rate then the payments require, thus effectively making a large "gift" tax free.

My city just launched a new public transit system. It's pretty basic and slow, but it will eventually get you to anywhere in the city. It's $5 per trip, but they have a policy where if you don't own a car, you ride for free and the taxpayers pay your $5 fare instead.

I have a Mercedes S-class, but I'm cheap and want to ride the bus for free (and let my neighbor's taxes pay for me), so I've given my car to my kid with the understanding that if I ever want him to drive me anywhere, at any time, he has to comply. Also, he's not to use my car for his own purposes under any circumstances. The car is to remain parked in his driveway at all times, and is only to be driven when I need him to drive me somewhere and don't feel like taking the bus (which I can now do for free, because I technically don't have a car).

Ethical, or no?

Perfectly ethical because you are in Canada. That's what the social welfare state is made for - exploiting.

Best. Answer. Ever.