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I'm wondering, for those who've been through this: We had to do the Medicaid spend-down to get mom qualified for SNF benefits this past June. She had stocks and life insurance policies. When I could, I told them to withhold taxes on what they liquidated, but I couldn't for each asset. So now she's got no money left, but will likely owe on some of the capital gains, I'm assuming.


Before this, she didn't owe taxes at income tax time. She didn't pay Federal and state would refund her what she'd paid in on social security and her tiny survivor's pension.


Seeing as her income now all goes to the SNF except for the small monthly stipend, how will the government expect her to pay on the profit from the stocks and life insurance policies?

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Retired IRS Revenue Officer (tax collector) here...the IRS can and should levy (garnish) her Social Security checks if she owes. If you knew not enough tax would be withheld you make Estimated Tax payments quarterly during the year or hold onto enough to pay when the return is filed. She can lose 15% of her SS to the tax debt collection. Just another comment...if you owe federal student loans (maybe that you backed for your kids) or child support, guess what...your SS can also be levied for that. Budget that into your retirement planning.
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If she owes federal taxes, all they can do at this point is garnish her income. For social security they can only garnish a certain % and it’s a small amount. I don’t know if they will do that though. So it sounds like.....if they garnish any of her income, Medicaid will just have to pay the nursing home more money. There’s nothing else for the IRS to levy at this point.
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Peekachu Jan 26, 2020
I think you are right. The nursing home takes whatever paycheck she gets and Medicaid makes up the difference. So it doesn't matter if her SS check is smaller than you thought. The bill should be paid and the SNF will get the agreed upon amount.
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If you sold all her assets, how was that money spent? It could potentially have been applied to tax bills if there are any. Maybe I missed something.
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DarkSeaglass Jan 24, 2020
Some of it went to her care (she was self-pay at $9k a month for 3 months at the SNF), some not. When I had an option to say "without expected taxes" I did, but that wasn't the case with some of the stocks. And I have no way of knowing what she paid for stock x or y, 25 years ago, to know how much she made as profit on the sale.

We aren't talking huge sums of money. Maybe a grand total of 15,000 in stocks.

I think I'll just find a way to pay her tax bill myself. It's stressful enough dealing with her unpaid and unpayable credit card bills. I don't want to deal with the IRS, in addition.

Thanks, everyone.
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Seaglass (BTW, I like that name; it reminds me of soft sandy beaches, smoothed glass with rounded edges and often lovely colors bleached by sun exposure),

You wrote that you have no way of knowing what the stocks cost when they were bought.    The company issuing the stock, or a mutual fund company if that's what the stocks are, has that information.    They calculate the basis for you.  

I raised that issue with the mutual funds holder after my father died and was relieved to learn that I don't have to do any of those kinds of calculations.  You don't have to calculate profits; the fund also calculates gains (or losses) on stock.
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jacobsonbob Jan 30, 2020
Excellent point, GardenArtist. In addition, there should be a deduction of at least $12,200 (or higher if itemizing results in a greater amount), so this should knock down the profits and thus the tax bill considerably. If any of the stocks have gone DOWN in value (unlikely over the course of 25 years, but possible), then there would be a capital loss, which would also count against the gains.

Not to encourage anyone to procrastinate, but you will have 2 1/2 months to get all this information together before you have to file and pay any taxes, and hopedly by then you will have all the pieces of the puzzle you need to calculate the tax.
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magnumpi29;

Your comments aren't relevant to the discussion at hand, so I posted my comment to you personally under your profile. It doesn't belong here any more than your comments do.
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Reply to disgustedtoo
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I don't think anyone can give an accurate answer at this time as to whether there's  any tax liability - perhaps after the end of January when all tax data should have been mailed out.   And there are more than a few issues on cap gains taxes.

Any taxes on capital gains might be offset if the dividends are qualified dividends.    I've been able to minimize the cap gains taxes for years b/c of that criteria.   If I understand correctly, the entire asset liquidation occurred this year?

Igloo, one of the posters here, is a Medicaid expert.   She has an ability to sense Medicaid posts and respond in detail.  

What I would do is create a spreadsheet logging all relevant data, amount of each fund liquidated,  sale price,withholding data. etc.,  when you receive the end of the year statements.    This would be the data used to prepare a 1040.

With a spreadsheet formatted, it's a lot easier to calculate automatically once you input the formulas, and you can keep a running total for an accountant.

And I would definitely hire an accountant, preferably someone with Medicaid qualification experience.    I've found that the large firms have a wide variety of specialty accountants, but they're more expensive.   When I needed a trust accountant, I found a small firm, received speedy treatment and was very pleased.

If you need help on locating an accountant and have an elder law attorney, she/he might be able to suggest one or more familiar with Medicaid and taxation.
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jacobsonbob Jan 30, 2020
In addition, it may turn out that the standard deduction of $12,000 (or perhaps higher if itemizing turns out to yield a higher figure) offsets the gains, and if any of the stocks actually LOST value (unlikely after 25 years), then this capital loss would help to offset gains.

The result may be that the tax bill is minimal or even zero.

In any case, one has 2 1/2 more months to get all the necessary information together (not intended to encourage anyone to procrastinate, however!)
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In my opinion, It is a very complicated system. go to the best elder lawyer you can find.
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Isthisrealyreal Jan 26, 2020
Ellenh6, I want to share with you that most elder law attorneys are not tax specialist.

If they have integrity they will tell you to see a tax lawyer or a CPA/tax specialist.

If they don't have integrity they will charge thousands and more to figure it out and then potentially steer you in the wrong direction.

It is so very important to use specific professionals to protect yourself and to save money.
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That is not only a poorly informed comment, it’s judgemental and unkind.
“Spend down” must take place regardless of large or small assets are.
Great care can take place in a nursing home, too. Many family caregivers do not necessarily give good care. That’s a very broad assumption and it ignores the fact that nursing home staff are trained.
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First thing you need to do, before you do anything, is to contact an Elder Law Attorney, they are familiar with elder problems, unlike a regular attorney. It is too bad you didn't do this first, but you can save yourself a lot of grief if you do it ASAP.
YOU ARE NOT RESPONIBLE for your mother's bills, don't take on her debt.
In the months before my husband died he was in two nursing homes, every week I got applications from DHS to apply for Medicaid, I threw them in the recycle barrel.
I met with an Elder Law attorney, we have a law in our state where if a spouse agrees to sign the house over we can have a Quick Pro Quid deed. This gave me the house and he had lived to go on Medicaid they could not have taken half the house to pay for his expenses. If we hadn't done that I would have lost half the to pay for his Medicaid. Also he had a credit card on which he had a huge balance, which I did not know about, upon his death the company contacted me to make arrangements to pay off the balance. I did not respond and sent the info to the attorney, she contacted them and I did not have to off the card, saving me thousands of dollars.
EVERYONE reading this contact an ELDER LAW attorney before doing anything in regard to finances for your loved one, it will save a lot of stress and heart ache.
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Reply to Baileyparker
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You definitely now need an accountant and to take all your papers to that person. This is not something we can answer on the forum and in general it is best to take advice with legal and medical or financial problems to the experts. Wishing you the best of luck.
This may not be as bad as you think; it may be worse. But you cannot know without checking it out.
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