Legally skirt tax/inheritance or not?

In My Humble Opinion
1

This is not a request for legal advice. I already have that. It’s more a moral/philosophical issue. Here are the facts:

[ul]
[li]My aunt died in Jan, leaving an estate of personal belongings, property, cash, and stocks worth somewhere around 300K[/li][li]She had no children, husband has been dead for 20 years.[/li][li]Her will states that her belongings should be divided up amongst her six siblings, my Mom is one of those six[/li][li]All other siblings are deceased, so their 1/6th shares go to their children, as laid out in the will.[/li][li]I have full POA for my Mom, she is 90 years old, and not really what you would call financially savvy[/li][li]Once auctions, final settlements, etc, are completed, she is to get 1/6th of the value of the estate.[/li][/ul]

Okay, those are the base facts.

Okay, more data.

My Mom is on Medicare and Medicaid, due to her complete lack of income, and minimal SS benefits. She has no savings, no valuable assets, etc. She easily qualifies for benefits of Medicare/Medicaid.

If she inherits 1/6th of this estate she will in all likelihood, no longer qualify for many/most of the benefits she currently receives. her medicine costs will skyrocket, the nurses aid who sits with her 4 days a week will be gone.

I was advised by my attorney, and the attorney working on settling the estate agrees, that I should have my mother “renounce” her share of the inheritance. According to NC statute, it would then go to next blood relative, which would be me. This would enable her to keep her benefits, and I would use the money to provide everything else she needs.

All perfectly legal. My Mom has no problem with doing it. The attorneys say it’s perfectly legal, and prudent.

Okay, last thing you need to know. I’m a true-to-the bone liberal. Everyone advising me to do this is not. Even if legal, isn’t this just playing the system for money? Just doesn’t feel right.

The way I see it, if inheriting this money means my Mom loses some of her benefits, then so what? We use the money to pay for those things. Taxpayer saves money, Mom still gets taken care of, no losers right? Of course the attorneys say protect the money, let Medicare/Medicaid continue to pay everything, and the money can sit in a bank account until Mom passes, and then it can be mine.

I don’t know, just doesn’t feel right.
Thoughts???

2

I would do it personally. I am not a liberal and I don’t like it when people abuse social programs in general. However, those types of social programs aren’t based on morality, they are based on strict rules. They would deny your mother coverage in an instant if she didn’t meet the requirements through some technicality no matter how badly she needed them in reality. You didn’t get to make up the rules and you should take advantage of any legitimate ones that will benefit you. There is nothing wrong with that and morality doesn’t enter into it because the system you are working against isn’t based on moral principles and there is no ‘spirit of its rules’ because they don’t work both ways. Likewise, you should take every single tax deduction you can qualify for because that is a rule based system as well and not a donation.

3

Is there any benefit to your mother for having her to re-apply for all these current benefits once the money runs dry? If there’s a three+ month gap in “coverage” (i.e., from when the money runs out to when the benefits kick back in), are you and her in a position to afford it?

If the answer to the above two questions is no, do what everybody is advising.

IMHO, your job is to maximize the amount of funds available for your mom’s upkeep. I assume your aunt would want the same. Doing what the attorneys are telling you is perfectly legal, and you shouldn’t allow your guilt to cost your mother thousands, tens of thousands, of dollars, which she will need to live.

4

there’s a difference between not “financially savvy” and incompetent to decide how to conduct one’s affairs.

If your mother is competent, then it’s her decision, not yours.

5

Agreed, but she isn’t competent to make decisions of this scope. While never being officially diagnosed as Alzheimers, she nonetheless exhibits the traits and takes medicine to treat.

6

I’m a liberal, and it does feel like gaming the system. But, the system is the system and if you can find a way to beat it, I can’t really fault you for it.

7

If you have POA, just go ahead and do it, assuming she’s okay with it.

8

When you calculate your taxes do you ignore itemization of deductions simply because you think people within your income range, should actually pay more in taxes?

If so, then by all means refuse the advice given to you by your legal advisers.

9

A holder of a POA has a fiduciary duty to enact the principal’s will. If renouncing is what Mom wants to do, and Mom has not be found incompentent by a court (as opposed to the OP’s mere hunch), then the OP is not entitled to frustrate Mom’s decision and will be subject to civil liability if he tries to.

OP: If exercising the POA as your mother requires is too morally taxing for you, you need to terminate the POA and allow your mother to nominate someone who is less vexed by the role.

10

All of this has been explained to her, but all my Mom says is “Do what you feel right” It’s not that I don’t have the “courage” to handle the role pf POA, it just comes down to this:

[ul]
[li]My mom will inherit money that my allow her to live off of her assets, not the government’s, for a few years.[/li][li]If funds dry up, she can re-qualify for benefits at that time.[/li][li]I can legally keep her benefits in place, by moving the money from her possession to mine, by having her renounce.[/li][/ul]

Legally, yes. But does this not feel a little underhanded to you guys?

11

Doesn’t feel underhanded to me. Take advantage of the legal technicality - the government would certainly deny her based on a technicality.

You don’t owe the government a moral duty in this situation, just a legal one based on the laws and rules they’ve outlined.

12

Renounce the inheritance. If you have POA it’s because you’ve been designated to make those decisions.

Your mom didn’t ask for the inheritance. She didn’t win a lottery or sell something valuable or marry Hugh Hefner. She did nothing to get the money and she shouldn’t be penalized because her sister died.

13

It’s a tax loophole and legally exploiting those loopholes to maximize assets/income is estate planning. Not much about money is moral, so do what’s best financially for your family. If you really feel guilty, then find a worthwhile charity that helps people who struggle with food or medical costs and donate some of the money.

14

I don’t think it is a problem at all. The “loophole” you would be using is a reasonable mechanism that prevents people from having to constantly modify their wills to account for these things. From my point of view, had your Aunt been aware of the implications of giving money to your mom, she would have opted to bequeath directly to you anyway (at least, thats what I would have done if I were her). As far as “loopholes” go this is unremarkable.

50K doesn’t seem like something she would be able to live off of for very long at all. In fact, I think the ‘loophole’ is there specifically to protect your mother from the unintended consequences of a sudden windfall.

15

This is an excellent point.

16

How is it not right? Would it be righter (that’s a word now) to let your mother lose her benefits because she inherited a one-time sum of $50,000? If this is about the ethics of it all, I can’t see how this is an issue. You already know you’re covered legally, so this seems easy as pie to me.

17

So you are talking about $50k.

$50k for your mother’s care would get eaten up in minutes (I’m exaggerating)…and then you’d have to reapply. You’d probably cost the government half that in taking her off, changing her billing, and then putting her back on Medicare. Plus your headaches.

If you were talking about enough money to see your mother through the rest of her life without having to rely on the taxpayers, you might have an ethical problem. I wouldn’t consider this amount material.

18

Hence the bit about Mom being okay with it.

19

Your responsibility is to your Mother, not to the tax-paying public. Making sure there is a nest-egg available to help if her benefits are suddenly denied, or cut-off, or not enough to cover something she needs is what you as POA should be focusing on.

Maximising her resources is not “cheating.” Unless this is a 7-figure sum that would keep her comfortable for life, you should protect what there is for use in her care.

20

Having thought about this for a bit, I’d be a bit concerned about using POA to effectively make a gift to yourself (even if you fully intend to use the gift for her benefit). I would at least suggest that your mother consult directly with a lawyer first as a CYA.