Question:-from Alabama--During the time our oldest son was going through his divorce several years ago, my wife and I loaned him $40,000.00 which was what it took to pay his past due child support, his lawyer, his former wife’s alimony, and to keep him out of jail. While he promised fervently to repay us as soon as he “got his feet under him”, apparently he is still walking on his hands because even though we delicately – and not so delicately -- remind him several times a year, he always puts us off. We are in our late 70’s and, in addition to needing repayment, we don’t think it is fair to our other three children, all who know we made the loan.

To top things off, our oldest has just married for the third time and, you guessed, continues to live way beyond his means. Is there anything we can do short of suing him? If not, what is the best way to even out things with our other children?

Answer: Assuming you did not get a written promissory note from your son that memorialized the loan transaction and established the terms or repayment, we don’t think you and your wife should hold your collective breaths waiting for his ship to come in. But there is more bad news because repayment is not the only area of concern because, by making a loan of this size, you could well be taxed by the IRS for the interest your son should have been paying you.

Based on the Applicable Federal Rates – called “AFR’s” – which are the IRS’ long-term interest rates that are revised each month, you could get hit with what is called “imputed interest”. At the current long-term rate of about four and three-quarters percent (4 ¾%), in the vicinity of $2,000.00 could be added to your income each year even though you don’t have access to the asset with which to earn the interest – a true double whammy, if there ever was one.

And to make matters even worse, your estate plan may suffer. For example, if you think that you might consider the loan to be a gift to your son, don’t forget that you will have to file a gift tax return and, to the extent the gift exceeds and annual exclusion of $12,500, you will use up part of your unified credit – which could mean more estate taxes if your estate is large enough.

And if your estate is not large enough to warrant estate taxes, should you or your wife enter a nursing facility and think you have used up all of your countable assets within the next five years and make a Medicaid application, this same $40,000.00 will either be deemed to be a countable asset or a gift that will cause a period of Medicaid disqualification. If this is the case, you will probably have spent the vast majority of your resources, meaning that your other children could well receive less when the last of you dies or, possibly, nothing.

Given the variety of taxation and other potential difficulties you may face based on your good deed, we suggest that you approach your son about making arrangements for repayment. Assuming he can’t or won’t, seek competent tax and legal advice, change your wills to make sure your other children are treated as fairly as possible, and don’t place your older son in the position of being a fiduciary for you as he does not deserve to be placed in any position of trust.

Question:-from Illinois--A nursing home is trying to discharge our mother (81) who was put there for rehabilitation after a stroke on Medicare because her coverage has run out. She has been there for 78 days, and the administrator wants our father, who is 82 and not in good health, to assume responsibility for her even though he can’t take care of her and even though the nursing home knew from the first day that our parents did not have a lot of money. They told us her time was up the day after Christmas, and we had two days to get her out. But Mom still needs assistance going to the bathroom, wears diapers, can’t get out of bed, and can’t dress herself. Dad wants to take her home, but we think this is a mistake. What can we do? Please email me.

Answer: The situation facing your family happens regularly to more folks than you can imagine because some facilities believe that you would not know any better than to pick up your loved one. First of all, the facility must give you 30 days notice during which time your father had the right to apply for Medicaid. Second, the facility must have in place an “appropriate discharge plan” which, we doubt, includes sending a vulnerable woman who requires total care with an 82 year old man who can’t provide for her.

We suggest that you call an experienced lawyer immediately so that your mother’s rights can be protected, and tune in next week to learn more about discharge planning.