Q. My mom recently entered a nursing home and my siblings and I have some questions and of course some conflicts as to how the costs should be covered. Mom's only income is from Dad's social security, they are divorced so she gets half of his current benefit which is around $1,000 a month. One of my siblings is willing to provide about 30 percent of what is needed and the other sibling will provide 25 percent. This leaves me coming up with 45 percent. It is my understanding that if I don't provide 50 percent of her support, I receive no tax benefit but if I provided 50 percent of her support, I would receive a tax benefit. So, should I pay more for her support and reduce my sibling's share to get the tax benefit or is it not worth the added expense? She has a few assets and one sibling is suggesting she give these to us now so she can qualify for Medicaid in 18 months; is this a good idea?
A. You should hire an attorney that specializes in Medicaid to make sure you are correctly preparing for your mother to qualify for these benefits. I'll provide some general information but it is not legal advice, personalized or detailed enough on which to act.
You can claim your mom as a dependent if you meet five tests. These same tests can be applied to both parents, in-laws and stepparents to determine if they can be claimed as a dependent. Your mom easily meets the first test, the person claimed must be related. Secondly, your mom must be a citizen or resident of the United States or a resident of Canada or Mexico. Thirdly the person must not file a joint return. Since your mom is divorced, she meets this test. The only exception to this test is if the person files jointly for the sole purpose of filing for a tax refund.
The fourth test involves gross income. For 2014, annual gross income must be $3,950 or less. In general, gross income does not include Social Security benefits or other tax exempt income. The fifth and final test has to do with support. You must provide 50 percent of the support for your mom during the year. Support includes, food, lodging, clothing, medical and other necessary expenses. Claiming your mom as a dependent will allow you to claim an exemption for her on your tax return.
Sign Up and Save
Get six months of free digital access to The News & Observer
In 2014 this would provide an additional exemption of $3,950. This amount is probably not worth paying more support than your current 45 percent arrangement. What you would want to do is take advantage of the exception to the 50 percent requirement and file a multiple support agreement. This agreement allows anyone paying more than 10 percent of the annual support for a person to receive the exemption as long as, with others, over half of the person's support was contributed.
All those contributing to the support would need to sign IRS form 2120 and you would attach this to your Form 1040 or 1040A when filing your tax return. A signed statement from all contributors (your siblings) waiving their rights to claim the supported person (your mom) stating the applicable calendar year, name, address, and social security number of the supported person doesn't need to be filed but should be kept for your records.
I'm not sure where the 18 month idea came from but the look back period for transferred assets is 60 months. Any non-exempt transfer made within 60 months of the Medicaid application will invoke a transfer penalty. Speak with an attorney knowledgeable about the Medicaid rules.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624