Family Problem Needs More Than a Financial Solution

Question: My mother-in-law is in hospice care and probably will die within months. In her will, she has given her sons--my husband and his brother--half of her estate. She is not wealthy, however. The only asset she and her 80-year-old husband have is their house. My husband wants to wait until his father dies to sell the house, but I believe we should sell the place now, put my father-in-law in an assisted-living center and leave all the money in an account to pay for his care. When it’s gone, he can go on government assistance.

I should tell you that this man was a lousy father and a worse husband. He deserted the family for years to have an affair, ignored his children growing up and once physically abused our child, his grandson. You get the picture: He’s a jerk.

Because of his treatment of us, I am not willing to borrow against our home or to forfeit money in our kids’ college funds to pay for his care. Obviously, my husband disagrees, but I would like to hear your thoughts. (What makes this worse is that I truly believe my mother-in-law wants her sons to have the money, rather than have it spent on her husband, but I really don’t see that happening.)

Answer: Actually, what’s interesting is that your solution could provide your father-in-law with a much higher level of care than he might receive if the house isn’t sold.

Still, your influence in this situation is limited. You don’t have to allow your jointly held assets to be spent on the man, but ultimately it’s your husband and his brother who must work out a solution.

It’s not clear from your letter whether your father-in-law needs care now, or whether you’re anticipating future needs. If he’s healthy and can live alone, then your husband’s reluctance to oust the old man is understandable. Most people want to remain in their own homes as long as possible.

Once he needs care, however, the equation changes.

One option is to let your father-in-law go on government assistance, also known as Medicaid, right away. That may not be the most humane approach, however. Medicaid doesn’t cover home health care or assisted living, so you would have to pack the old guy off to a nursing home. Some children are willing to do that rather than watch care bills drain away their potential inheritance. But it doesn’t sound like you and your husband are that type of people.

Going on Medicaid also can have future financial consequences. Medicaid may put a claim against the home after your father-in-law dies to get reimbursement for the costs of his care.

If your husband wants to avoid the nursing-home route, he and his brother may be able to borrow against the house’s value to pay for home care. Or, if that’s not feasible, they could sell the house and do as you’ve suggested, which is to put the money in an account to pay for an assisted-living center. Only after that money is gone would your father-in-law have to go on Medicaid and be transferred to a nursing home.

You obviously married a decent man, who was raised by one who was not. Your job is to help your husband sort through the options, without pushing him too hard. He’s already dealing with the impending loss of his mother, and perhaps he’s not ready to think about what may happen to his dad. With your help, though, he and his brother can consider the options and ultimately pick the right one for your family.

Education IRAs Can Be Shifted to 529 Plans

Q: In a recent column you talked about how education IRAs, now known as Coverdell Education Savings Accounts, could be transferred to a 529 college savings plan. Can you also transfer a Uniform Gift to Minors Act account as well? I opened them for our kids before the 529 plans were widely available.

A: Yes, you can transfer UGMA accounts (or, as they’re known in some states, Uniform Transfer to Minors Act, or UTMA accounts) to a 529 plan. As with education IRAs, however, some special rules apply.

The money in the UGMA or UTMA account legally belongs to your child.

Even when transferred to a 529 plan, which are state-sponsored college savings plans now gaining popularity, the money will be your child’s to spend when he or she reaches the legal age limit, typically 18 or 21.

That undermines one of the advantages of a 529 plan, which gives parents more control.

When money is contributed directly to a 529, instead of transferred from a custodial account, the parents can switch beneficiaries or even withdraw it, with penalties, if the intended beneficiary doesn’t use the money for college.

Still, you’ll be getting professional management and tax-free withdrawals if you transfer the custodial account to the 529. If you want more information, check out www.savingforcollege .com and www.collegesavings .org.

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Liz Pulliam Weston is a contributor to The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at asklizweston@hotmail.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at www.latimes.com/moneytalk.