Regina - personally I think a lot of this depends on just how much $ you are looking at as proceeds from the sale & how much debt there is & just how long before mom will run out of funds and apply to Medicaid.
A home selling for 65K much different financial situation than one selling for 650K.
As mom will have funds from the sale, I'd suggest you have her & you go to see an elder law attorney to go over options on what to do with the house $. If mom does not have a prepaid NCV funeral & burial done, then using house $ to get that done is really good. they seem to be under 10K to be Medicaid compliant but the attorney will know the figure for your states program. Spending down on a couple of pairs of new eyeglasses and hearing aids and dental work - all are good spend downs as what is provided by Medicaid is pretty non existent. So after these things are done, how much house $ is left?
I think that you should expect that mom will get a 1099-C for each CC debt. The fun part is that it may not be done in this year but a year or two from now and will be for the outstanding debt, plus interest and fees. It is fully taxable income. IRS as a super-creditor can seize their SS and retirement which poses a problem for those on Medicaid as they are required to do their monthly income as their copay to NH.
For 1099-C there is IRS Form 982 Insolvency that can be done to offset the income. It is not simple….really it could have been written in Latvian for me. Most 1099-C & Form 982 information is about how to deal with it for foreclosures & short sales, as the mortgage written off is taxable income. For elderly, doing a successful 982 for written off CC debt is going to be much harder. I had to deal with it for MIL and it was done by a tax professional.1099-C tend to come as complete surprise…..but you can't ignore it.
I listen to Dave Ramsey on the radio a lot. He says that you should write the credit card companies and explain that the person is moving to nursing home and that everything is being sold to pay the expenses thereof, and you are very sorry but she will not be making any payments. You may choose to pay, but you are not required. The credit card company took a chance by allowing her to borrow from them, and sometimes they don't judge well. That is part of the credit business.
Remember that if the credit card companies write off more than $600 in debt, they will issue the person a 1099-C cancellation of debt and this is treated as income by IRS and by Medicaid. It can really mess up an elder's finances if they have a house and cannot claim impoverishment for IRS debt. Please consult an elder attorney experienced in Medicaid (if applied for) and financial planning. What works for a person who is not applying for government subsidies doesn't work for someone applying for Medicaid or VA benefits.
Just thinking....if 1099-Cs are issued, and Mom is still in a nursing home, I'm wondering if the nursing home would be considered to have a superior lien on any assets/funds than the credit card issuers, even though the credit card debt was incurred prior to the nursing home debt.
Garden - if the CC issued a 1099-C, then the debt as far as the CC/OC is concerned is written off, gone, poof….so there can be no lien placed as there is no debt owed.
Probably a lot of this will depend on state laws on property - like both FL & TX are pro-homeowner and do not allow for unsecured creditors, like CC to be able to place a lien on a homestead property even if they go an get a judgement.
My mom went onto Medicaid owning her home and died owning her home, for both NH she was in, the NH admissions contract stated something along the lines of their ability to place a claim against the estate after death for any outstanding amounts due to the facility if she became Medicaid ineligible AND that her NH personal trust account would be held till all billing cleared. Mom's Nh sent the trust $ balance (under $ 100) within 3 mos.
For after death claim, the way I read it it seems NH debt would be a class 1 claim (this is TX which is a level of claim probate state) BUT limited to 15K and for billing only within the last year (I'm fuzzy on the $ & time frame as not an issue). For all other debt, they go into their respective Class by # and paid or settled in order of # priority. BTW MERP is class 7 as per state law and CC are class 8 for TX. House & administrative costs of probate are within Class 2 - 4.
Igloo, do you see a bright red sheen as I write this? It's the color of my red face as I cringe in embarrassment for totaling missing the point of writing off the debt. Duhh....
Thanks for setting me straight.
It's time to hit the garden and get my head back together again.
A home selling for 65K much different financial situation than one selling for 650K.
As mom will have funds from the sale, I'd suggest you have her & you go to see an elder law attorney to go over options on what to do with the house $. If mom does not have a prepaid NCV funeral & burial done, then using house $ to get that done is really good. they seem to be under 10K to be Medicaid compliant but the attorney will know the figure for your states program. Spending down on a couple of pairs of new eyeglasses and hearing aids and dental work - all are good spend downs as what is provided by Medicaid is pretty non existent. So after these things are done, how much house $ is left?
I think that you should expect that mom will get a 1099-C for each CC debt. The fun part is that it may not be done in this year but a year or two from now and will be for the outstanding debt, plus interest and fees. It is fully taxable income. IRS as a super-creditor can seize their SS and retirement which poses a problem for those on Medicaid as they are required to do their monthly income as their copay to NH.
For 1099-C there is IRS Form 982 Insolvency that can be done to offset the income. It is not simple….really it could have been written in Latvian for me. Most 1099-C & Form 982 information is about how to deal with it for foreclosures & short sales, as the mortgage written off is taxable income. For elderly, doing a successful 982 for written off CC debt is going to be much harder. I had to deal with it for MIL and it was done by a tax professional.1099-C tend to come as complete surprise…..but you can't ignore it.
In other words, who would have the superior lien?
Probably a lot of this will depend on state laws on property - like both FL & TX are pro-homeowner and do not allow for unsecured creditors, like CC to be able to place a lien on a homestead property even if they go an get a judgement.
My mom went onto Medicaid owning her home and died owning her home, for both NH she was in, the NH admissions contract stated something along the lines of their ability to place a claim against the estate after death for any outstanding amounts due to the facility if she became Medicaid ineligible AND that her NH personal trust account would be held till all billing cleared. Mom's Nh sent the trust $ balance (under $ 100) within 3 mos.
For after death claim, the way I read it it seems NH debt would be a class 1 claim (this is TX which is a level of claim probate state) BUT limited to 15K and for billing only within the last year (I'm fuzzy on the $ & time frame as not an issue). For all other debt, they go into their respective Class by # and paid or settled in order of # priority. BTW MERP is class 7 as per state law and CC are class 8 for TX. House & administrative costs of probate are within Class 2 - 4.
Thanks for setting me straight.
It's time to hit the garden and get my head back together again.