What assets should I sell- a home valued at $380,000 or $300,000 in fixed rate annuities- to pay for my elderly mother's end-of-life care?
My 84-year-old mother was just diagnosed with dementia and needs to go to a care facility. I have power of attorney and am also the beneficiary of her assets, including $300,000 in annuities (fixed rate 3% annually) and a house worth $380,000. To pay for her care, is it best to sell the house, or use the annuities? Is there another option?
More information is needed to answer this question. A few major questions that need to be answered are:
- Have the annuities been annuitized already?
- Are the annuities out of their surrender period?
- What are the annual fees on the annuities?
- Are the annuities qualified (in a tax-deferred retirement account) or nonqualified (in a taxable account)?
- What penalties and/or taxes would you have to pay if the annuities were liquidated?
- What is term on the annuities if already annuitized? Do payments end upon her death or is their a period certain?
- What is the total death benefit of the annuities? Is it higher than the amount the house is worth?
- Is anyone currently living in the house? Is it rented? Does it generate any cash flow?
Depending on how you answer the above questions, either option could make more sense than the other, but as you can see, a lot more details are needed in order to help you decide which option is best as there's simply too many variables to consider.
Sell the annuities. Any gain will be taxed to your mother. Assuming her tax rate is less than yours. Check with your tax advisor on what medical expenses may be deductible to further lower her tax rate.
When inherited and sold you will pay no taxes on the house.
She/you should contact an elder law attorney to discuss your options. She may be able to qualifty for Medicaid at some point. I myself work at such an office, although I am not an attorney, so the one piece of info I can offer you is this. Her home is considered an exempt asset, and the facility cannot force you to sell it if all her other assets were depleted. So at first glance, the answer would be to sell the annuity first. However, please contact an elder law attorney to discuss your options.
Please accept my condolenses for your mother's health. I was in the same boat a few years ago and understand how difficult this is. Your questions are difficult to answer without a little more information. The best answers could vary depending on what state you live in. Are any of your mother's assets in a trust? Have any assets been sheltered from Medicaid? Does she draw income from the annuity? Is the annuity out of surrender and one where you can draw the principle without restrictions? Is anyone living in the house?
Without knowing the answers to these questions, I would suggest looking into the annuity first. If you have flexibility and can withdraw any amount, this might be the easiest option. If you can establish monthly distributions to cover the cost of the nursing home, this will be easiest. The other option is to consult an elder law attorney and determine if she is eligible or can become eligible for assistance.
To pay for her care you need to do some MEDICAID planning now. Don't let the skeptics fool you, there are things that you can do right now to probably preserve at least $300k of her monies instead of wasting them on nursing home costs. I routinely run through cases like this on a daily basis and depending on the state that you're in you could be leaving several hundred thousand dollars on the table by not having a pro-active plan. And you don't need to pay $20k for it....