Back taxes and refinancing to pay for care?

A fellow caregiver asked...

My mom has Alzheimer's that is now at the stage where I have invoked her medical power of attorney and power of attorney. I have discovered she has not filed her income taxes for some years. A family member told me her accountant told her that after dad died she didn't have to file any more since her income is low. I have also heard that Federal retirement pay does not have to be declared as taxable income. Is this true? What should I do about filing her past taxes?

Also, I need to refinance her house to pay for her care. How will that affect income and her taxes for next year? She gets my dad's VA retirement, social security. Since she is medically needy, can she qualify for Medicaid? Medicaid homes do not have Alzheimer's care units, can I get a waiver to keep her in the Alzheimer's care facility where she is happy and our family can visit often?

Expert Answer

Barbara Repa, a senior editor, is an attorney, a journalist specializing in aging issues, and the author of Your Rights in the Workplace (Nolo), now in its 10th edition.

What you’re feeling is true: You are at a very sensitive and confusing point in taking over many of the caregiving duties for your mom.

You might also have noticed you’re at a point in which many well-meaning friends and relatives are coming forward to offer their well-meaning advice, which can often be conflicting and dead wrong—and make you feel even more confused.

My advice is to ignore their advice. The truth is that all the systems you mention: taxes, Medicaid, Social Security, VA retirement pay, and care facilities all impose their own regulations—and no one, no matter how well-meaning, can give you meaningful advice without eyeballing the specifics of your situation and having some divine knowledge about how all these systems work together.

You need help from an expert—or maybe two: a financial planner or tax expert and eldercare attorney. And the best and most targeted help in such situations usually comes from local resources. Your best first stop in locating affordable help would likely be through the local Agency on Aging. Explain your situation—and staff there should be able to give you some leads on finding the targeted help you need.