Welcome to another edition of Aging Insight. I'm your host, John Ross, here with my partner, Lisa Shoalmire, and you're watching the best program in the Ark-La-Tex to find out information about aging on your own terms. Yeah, that's the whole purpose of this program is to talk about the different issues that come with the aging process, of avoiding nursing home care, avoiding going broke as you pay for yourself, avoiding becoming a burden on other people. The kind of issues that you're concerned about, we want... If there's things you want to avoid, we want you to avoid them, we know that you can, but we also know that you can only do it with the right information because so often people, as they go through, they make mistakes and those mistakes can come back and haunt them.
Now, today's topic is not a bad topic. It's not necessarily about the bad, awful things that can happen. So many of our topics are about bad things that can happen and what do you do when they come, but today's topic is about generosity. It's about being nice, it's about doing for others. We just wanna make sure that when you do do for others, you do it correctly, so that you don't find yourself in a problem.
Again, part of the whole goal of all of this is to avoid problems before they come up and doing things right, and one way that a lot of times we see little problems build into big problems relates to that older generation taking care of financial issues for that younger generation.
That's right, John. We're fortunate that a lot of our seniors, because of their jobs they had as they were raising their families and their savings preferences, we have a generation of savers. They didn't blow up and buy a lot of things on credit, they paid their bills as they went, and so now they're entering their retirement years and they've got a little bit of a nest egg and they've got some financial security. And these days, the older generation is the one that possesses the vast majority of the assets and net worth out there. And so our younger folks, the children and the grandchildren of our seniors, economically there are struggles. And a lot of times our seniors, in wanting to help family members, also offer financial assistance to their children or grandchildren, and that's a wonderful thing. And if you've got the means and you want to do it, we think that is fabulous, but we want you to be aware of some pitfalls that can come from financially assisting that child or grandchild or even great-grandchild. We've seen some of that as well. So John, what are the kind of financial issues we see that...
Let me just kind of give a story, and this is a real client situation. So we have mom and dad, and as so many, they had a home, they had a little bit of financial resources, they also had a son. And the son, he had a business, but as so many small businesses do, the business kinda went south and the son got a little financial trouble. And when the son got to the point where he needed a home, he wanted to buy a home for his own family, he just didn't have the credit. He didn't have the financial resources to buy a home for himself, the banks just wouldn't lend him the money, so mom and dad buy a home. It's in mom and dad's name. Mom and dad have the mortgage on the home, but son, he makes all the payments, and he does.
For the next 20 years, that son makes all of the payments until that house is completely paid off, and that son lives there for that whole 20 years. And during this time, mom, she passes away, and so here's dad, and now dad has come to a point where he needs long-term care. In fact, he's in a nursing home, and they're trying to figure out how to pay because they don't have enough money to pay the 5,000 dollar a month care, and so they start looking at, say, Medicaid to help pay for that. Well, as you may have heard on this show before, you can have a home and still qualify for Medicaid, but notice that dad has two homes, he has his, but the one that he helped his son buy, that's still in his name. That's still in dad's name. Even though son has always paid the bills, paid the mortgage, paid the taxes, paid the interest, paid everything for that house, it's still in dad's name, and when it comes to qualifying for Medicaid to help pay for that care, Medicaid won't pay for them because of that second house. And now, we've got what started out as a well-meaning, well-thought-out process, we've created a crisis.
Right. And what's happened is we've now put the son's house is really in the crosshairs because in order to get the care that dad needs, the state is saying that the value of son's house, $100,000, $150,000, needs to be spent on dad's care before there can be any assistance from the state to help with that expense. So now, the son is at risk of either having to mortgage his home or sell his home in order to pay for care for dad, even though the son's already paid for this house. He made every payment. So it really is and still continues to be a problem.
Right. And this is one of those classic situations where, between parents and their child, they did all of this based on the fact that mom and dad knew that they could buy this house for son. They knew that son would make all of the payments and take care of it and do what he could to pay for it, and so they didn't feel like they needed a written contract that explained that they were buying the house but that son was gonna pay for it, and at the conclusion of those payments, the title was gonna get transferred from mom and dad to son. And they did it for themselves. Within the family, they may not have needed all of that contractual paperwork, but we're not talking about within the family. We're talking about how that little family event is affecting these third parties, like Medicaid and other government assistant programs. And so that's where papering, putting together the paperwork to establish what it is you're doing and why you're doing it so that one day in the future, when it comes down to somebody saying, "Well, okay. Well, explain all of this," you've got the paperwork and the documentation to show the real intent.
Right. And so that's our first point today is if you're going to assist the younger generation, children, grandchildren, great-grandchildren, I understand you're doing it out of love and affection and concern for that younger generation, but document, document, document. This is not so that someone can come back on them and hold it over their heads as to what grandma did for them, but it is necessary because you never know when an explanation for your assistance is going to be required. So point number one is document that assistance. I think this is the time to take our first break, and when we come back, we'll talk about some of the other financial transactions that we commonly see our seniors assisting that younger generation with, and some things to look out for. We'll be right back.
Hi, I'm John Ross, elder law attorney and board member for the Alzheimer's Alliance and welcome to Our Place. Our Place is a day program designed to provide rest and relief for the caregivers of people with Alzheimer's and related dementias. Our Place is a safe environment where our friends benefit from socialization in a homelike environment. Alzheimer's is devastating and affects over 17,000 families in our area. To find out how Our Place can benefit you, please visit our website.
Welcome back to Aging Insight. I'm Lisa Shoalmire and I am here with John Ross. And today, we're talking about really a warm and fuzzy topic. I like it. I like... We often talk to folks who wanna give a hand to the younger generation, whether that's put a downpayment on a home, pay for some education, college degrees, purchase a car, cosign a loan to start a business. A lot of our seniors, they're looking down the road and they would like to see their children and grandchildren financially secure and have the tools that they need to live that independent life. So we have a lot of generous seniors out there who do that kind of thing.
Right. And in the heat of the moment, when something's going well, you've got a child or a grandchild who's excited about their new business, or maybe they've just got into graduate school or law school or medical school and they're excited about this, but starting up a new business is expensive, graduate school is expensive. And there may be loans that need to get taken out, and a lot of times, a young kid, they just don't have the kind of credit to get those loans, or maybe those student loans to help pay for that education. And so they might be coming to grandma or grandpa and saying, "Hey! I could get a student loan. And with that student loan, I could go to medical school, but I need somebody to sign onto it with me."
"They won't do it to just me." And when everything's going great, that's a great idea, but while you love when things are going great, you plan for when they go wrong.
Right. And so in the example that you were just talking about, John, when a grandchild or great-grandchild gets into that graduate school program and needs those student loans in order to pay those tuition bills, and they come and ask that grandparent to cosign on those student loans, a lot of our seniors, not as many of them have college degrees and the ones that do, they did it by paying as they went to school and they didn't deal with student loans. And I tell you what, student loans are quite a minefield, particularly for a cosigner or a guarantor on that loan. A lot of seniors have the mistaken impression that student loans can only be collected back from the student or that somehow the government will pay the loan off if there is a default by that student when the loan comes into repayment, but the harsh reality is is for many types of student loans, if a grandparent or a senior family member signs for that loan, then that loan essentially also becomes the obligation of that senior if the student borrower does not pay the loan back. And most importantly, student loans are one of the few types of debts from which your Social Security check can be garnished to pay back a student loan.
Yeah, yeah. You heard that right. If you got behind on your credit cards, and even if your credit card company sued you and got a judgement against you, they couldn't get your Social Security check. If you owed money on a car and you couldn't make your car payment, they can't get your Social Security check, but if you cosigned on that student loan, in many circumstances that student loan, they can come after your tax refund, they can come after Social Security or any other federal benefits. So if you're a federal retiree and you receive a federal pension or something like that, all of those can be affected by that student loan. They're very powerful. And you might be thinking, "Well, you know what? I'm not worried. This grandchild is a perfectly good kid. I'm just not worried about him, so it's no big deal. He'll pay it back." And so he spends three years in medical school, he racks up $100,000 in debt, and he's heading off to be a surgeon. He's gonna make millions of dollars a year and he gets into a car wreck and becomes disabled. Now, they don't stop requiring you to repay student loans just because you're disabled.
That debt is still out there, and now this perfectly good child who would have paid for it if he could, he just can't because of, through no fault of his own. And guess where that student loan company's gonna be looking? Right at you. And so be very careful. There are lots of ways that things can go bad even when the family's good, even when good people are involved.
Yeah, so we're not saying that you should never sign for a student loan. We all want our children and grandchildren to do better than maybe we did and to get a better education and to have a more secure future and a better job, but we just ask you to think about the consequences and decide if you're willing to accept the potential negative consequences before you sign on to that student loan because the potential negative consequences are really far-reaching on that particular type of debt. Under those circumstances, maybe it's better just to give a cash gift or to agree to assist a couple of times a year with cost of school.
Yeah, and so I think what we're gonna do is we're gonna take another break, and when we come back from our break, we're gonna talk about... These have been some bad scenarios, but how do you give these financial benefits to these other people in the right way? And we'll talk about that in our last segment coming right up.
Welcome back to Aging Insight everybody. I'm your host, John Ross, here with Lisa Shoalmire. And today, we're talking about benefiting those other family members like your children, your grandchildren, when they need a little help. Maybe they need a little help buying a house, or going to college, or buying a car, or maybe they're just in some financial buy-in and they need a little money. What's the best way to transfer that? And the first thing that we talked about was document, document what you've done. If you're buying a house for a child, but they're gonna make all the payments, document that so that everybody knows what the deal is. If you're signing onto student loans, that was kind of our second thing, or any other loan agreement, make sure you understand what happens when that goes bad. Not that it will, and you certainly hope that it won't, but what if? And that's what you wanna plan against. I guess my... On the last part of this, Lisa, is when you do wanna make these gifts, there are some good ways and some bad ways to do it. But I'll tell you, one thing that I always tell my clients when it comes to gifts, and this is something that I got from my mother.
My mother used to always say, "You never loan somebody more than you're willing to lose," and I always talk about this from a family standpoint, that if you're gonna give some money to somebody, if you're not willing to just give it to 'em, don't loan it to 'em unless you're willing to just give it to them.
Well, and it's not really just if you're willing, sometimes it's about, "Are you able?" Are you... Can you take a financial loss if the money that you are transferring to that child or grandchild... You're thinking about it as a loan, but that money is part of your necessity nest egg for your retirement. You need to consider that if you never get a dime of it back, what does that do to your financial security in the future? So I like that, John. Never be... Never transfer funds or give funds away to a child or grandchild that you can't take the loss of.
Right. It may never... And people will come and they'll say, "Well, John, I'm gonna loan my grandchild some money, and I want you to put it all on paper, and I want them to sign off on it so that if they don't make the payments, they're contractually obligated." And I say, "Well, yeah, I can do all of that, but if they don't pay, are you really gonna sue your grandchild for breach of contract?" No, of course not. So if you're that worried about them not paying it back because you can't afford to lose that money, don't give it to 'em. You do have to think about yourself first, and your needs. A young person's got a long time to work and make money and come out of a bad financial position. At 80, you don't have that option. You just can't come back around.
One other thing about making these financial gifts, whether you're giving money for college, whether you're helping somebody put a downpayment on a house or buy a new car, always remember about your long-term care needs. Not everybody can afford $5,000 a month for a nursing home. Those people are often gonna rely on something like Medicaid to help pay for their care. And if you're one of those folks, remember that any transfer of assets that occurs within five years prior to applying for Medicaid will create a penalty, a period of time where Medicaid will not pay for your care because of that gift.
And you can jump up and down all day long and say, "Well, I just did this for my grandson because he needed a car 'cause his other one got totaled in a wreck and the person didn't have insurance," and blah, blah, blah, blah, blah. Medicaid doesn't care.
For every $4,500 to $5,000 that you give away, you're gonna be disqualified for one month of Medicaid, period. And so keep that in mind as you're transferring assets from you to other people that that could affect your ability to get the care you need later on down the road. However, there may be ways that you can do it correctly like, for example, if you're talking about a grandchild, if you're paying for college instead of giving them the money and letting them pay for the college, putting it in a college savings account, that actually might not penalize you when it comes to Medicaid.
That's right. There's a lot of vehicles out there, financial vehicles where you can make provision for college educations and do it in such a way that you're able to gift some funds to that grandchild and it's accepted into a special type of account that can only be used for college expenses, but yet you've completed a gift and that gift is not counted as a transfer so long as you use that specific type of college savings account.
Right. So, with all of this, if you are thinking about transferring some assets, it's a great thing and it's a good idea in many cases and it's a wonderful thing that you have the financial ability to be able to take care of the people that matter to you. That's great. What we want you to do is understand that there are potential consequences that you may never realize and you could sit there all day long and rack your brain and think about how things could go wrong and you'll still miss some. Why? Because unlike us, unfortunately, we get to see people's problems every day, day in and day out.
Yeah, we see those. And so get some good advice on how the best way to transfer those assets or help that person out financially because now, if you do it right, you can benefit them without hurting yourself in the process, and that really can be a beautiful thing.
Yeah. So I guess to sum up, document, document, document, and make sure you're fully aware of the consequences if the worst of the worst case scenarios happens with this asset or this loan or this gift.
That's right. And ultimately, get good advice. An experienced elder law attorney will be able to help with this sort of thing. And of course, if you have questions about this sort of stuff, you can catch us on the radio every Saturday at noon on 107.1, and that's live call-in radio, so you can call in and ask questions, you can find us on the Internet at aginginsight.com, and you can of course pick up one of our Aging Insight magazines anywhere in the community and there's articles in there that may answer some of these questions.
Alright. Well, we appreciate you tuning in with us for another week on Aging Insight, and we'll see you next week.
In this episode, Lisa Shoalmire and John Ross discuss the topic of generosity: about being nice, about doing for others… just make sure that you don’t find yourself in a problem.