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NS-Consult Qualified Attorney Before Parents Move In With You
Jan L. Warner & Jan Collins

Question: Because no family lived near them, my parents, 77 and 79, sold their home last year and moved in with my wife and I until they could get situated.

They looked at condominiums and independent-living facilities, but the cost was out of sight. Since two of our children are still at home and our house does not comfortably accommodate all of us, it was decided that my wife and I would add an apartment area for my parents and they would help with the cost ($100,000). My parents do not own any part of the property, which belongs to my wife and I.

In addition, my parents share our monthly living expenses by paying part of the utilities, groceries, etc. Now we are concerned about what will happen if either of my parents needs care. They only have $65,000 in the bank, and their total income from Social Security is $1,450 per month. My wife and I have protected them in our wills by making sure that if we die, they will have a place to live until their deaths.

If either needs nursing-home care and applies for Medicaid, how will their contribution to the cost of their apartment affect them? I understand that the government looks at the last five years of their financial transactions, and we assume that they will not be able to apply for a long time. Also, are there limits on what they can give us to help pay for utility bills, food, etc. We are also concerned about any gift taxes. They are both in good health now, but one can never be too prepared. We would really appreciate any advice on this.

Answer: First of all, you should have contacted a lawyer knowledgeable in this area rather than "winging it" and asking questions long after the transaction took place. If your parents own no part of the property and a care contract was not entered into, it would appear that your parents made a gift to you and your wife of $100,000.

Even though there is no gift tax due, your parents are required to file gift tax returns by April 15 of the year after the gift was made. This gift will almost certainly impact a future application for Medicaid by either of your parents, even assuming they otherwise qualify.
We suggest that you contact an experienced elder law attorney now to see what, if anything, can be done about the prior transaction as there will surely be significant issues to deal with down the road.

When it comes to your parents sharing living expenses with you, there are several issues that should be considered. First, you and your wife certainly don't want these payments to be considered as "rent," which would be income to you and could affect your tax basis in your home. For this reason alone, you and your parents should enter into an expense-sharing arrangement, in writing, by which ongoing monthly obligations are divided on a fair, pro-rata basis. You need an experienced lawyer to handle this also.

Taking the NextStep: Today, more and more parents are moving in with children. Creative planning is essential before the fact. Experienced lawyers in this area can help avoid fire drills at the last minute.

Need more advice or help with this topic? Click here to get information about taking the "Next Step".

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