My Mom has some money saved but also has credit card bills. Should we pay off those cards?

Guestshop - yes but they should be able to do an IRS 982 filing with their 1040 to get it such that they show impoverishment. My mil was a real financial terrorist with CC debt, so 1099-C cancellation of debt was an issue. But the CPA did the 982 (reduction of tax attributes....) such that their debt offset the 1099 phantom income. The 982 is usually used for offsetting the phantom income from foreclosure or short sale & most info on 982 is geared to doing that but can be used to offset the CC phantom as well.

Really all this can get to be complex, using funds for a good elder law attorney and FA that understands how Medicaid works is very worthwhile.

You may have already done so, but with dementia you or someone, needs to take control of the finances so she does not waste money or get scammed.

The only other thing to remember is that credit card debt that is written off by credit card company will be reported to IRS on 1099-C as cancelled debt. This is income to an elder and could affect Medicaid eligibility down the road. I had a tax client that got a tax bill from IRS on credit card debt written off 2 years ago that the CC company finally sent 1099-C on. The tax bill would NOT be judgment proof in all situations. Consult with elder attorney that has tax experience too.

You may want to look at moms financial situation from a different viewpoint. NH runs from 5K - 15K a year just for room & board. AL somewhat less.

Does mom have 200/300K to be able to private pay? Average NH stay is 2 years. Plus $ to fully pay off CC debt?

OR Does mom have a LTC policy that will pay for a facility & does she have the funds to pay NH once policy maximum is used? & fully pay off CC debt?

OR is family going to private pay for her care for the rest of her lifetime?

will mom or family pay the 20% copay for Medicare charges?

If the answers are "not really", then mom is likely to be applying for Medicaid to pay for her care & pay the gaps that medicare does not pay. Once on Medicaid, moms income will need to become her required copay or SOC (share of cost) to the facility. Mom will have no funds to pay her life insurance ( if she still has premiums); pay any costs on her home (if she still has a home); pay for dental, eyeglasses, hearing aids; funeral or burial policies. Mom will have only a small PNA - personal needs allowance - that varies by state from $35-105 a month. For my mom in TX it was $60 a mo & really just enough to pay for on site beauty salon & some clothing replacement. All other costs will need to be paid by family.

You may find that rather than paying off her CC (which is unsecured debt), it is a better use of limited funds to get a fully prepaid medicaid compliant funeral & burial policy; dental work; paying off in full any term life insurance policies; new eyeglasses (couple of pairs as these just walk in a NH); new hearing aids; a really nice walker or wheelchair as the ones on Medicaid are the most miminal; and a new more suitable wardrobe.( My moms once lovely wardrobe was pretty well gone within 6 mos of NH high heat wash & dry; really if I'd known I would have done a good bit of spend down on lots of sturdy fabric, easy care clothes & several pairs of shoes and just set them aside till needed.) If mom owns a home & it's going to be sold, then spending funds to make it market ready is a good use of funds as well. To me in my experience, it better to spend down on things that have a direct benefit for the elder rather than a CC company.

Really if $ are limited, take a realistic look at all this to decide where best spent. The CC will be relentless in trying to collect, but there is little they can do as its unsecured debt. Moms SS is fully protected from seizure or attachments by CC. Only super creditors (IRS) can touch SS income. It's not like mom is going to buy a car or needs a good credit score anymore. Good luck in all this as there are hard decisions to be made.

I thought pretty much everywhere you could only have $2000 for Medicaid and they have the lookback period for what you do with your money, so even if you take it and pay them off they could then hold her responsible for that money, not that you could get it back but you would probably then have to spend down for her care, so would you or she have the money to do that? Is the concern the credit card companies taking her money anyway so she wouldn't have it anyway to pay for her care? how could they do that anyway, especially if she's placed somewhere and the money's being used for that?

I thought pretty much everywhere you could only have $2000 for Medicaid and they have the lookback period for what you do with your money, so even if you take it and pay them off they could then hold her responsible for that money, not that you could get it back but you would probably then have to spend down for her care, so would you or she have the money to do that? Is the concern the credit card companies taking her money anyway so she wouldn't have it anyway to pay for her care? how could they do that anyway, especially if she's placed somewhere and the money's being used for that?

I agree that talking with an elderlaw attorney who knows your state's Medicaid rules is a good idea. Every state is somewhat different so your approach should be based on that. It's worth checking with a local expert just to be sure that you're making the right decisions based on your state laws.

We love to have you keep us updated on how you are doing,
Carol

Debt is not an asset. If you are placing your loved one in a retirement center and using public assistance to pay for her care, then the state, or county public assistance org. will have requirements regarding how much money she can have in her bank account and what assets she can still keep.

talk to an elder lawyer.
find one with experience with issues you face
which is more valuable to you cash on hand or paid off CC

Honestly, this is such a varied and complex issue that you should be talking to a professional, like an elder lawyer.

It really all depends on how much money she has and where you place her.

Paying off debts for purchases shouldn't be an issue. Debt is not an asset. Anymore than paying cash for purchases are.