Medicaid Asset Protection Strategies You Should Already Know About
February 16, 2017
Medicaid asset protection has a greater chance of success when you do not wait until last minute. Many aging adults do not understand their options regarding long-term health care (or assistance). Some believe it just will not happen to them and they will not need long term care. The U.S. Department of Health and Human Services says otherwise, "Someone turning age 65 today has almost a 70 percent chance of needing some type of long-term care services and support in their remaining years." For this reason, we are going to discuss strategies for Medicaid asset protection.
To be clear, not everyone will require around the clock care. However, rules for meeting income requirements are the same for everyone regardless of the level of assistance needed. Let’s start at the beginning…
What is Medicaid Spend down?
This is what you must do to qualify when you have too many resources. In other words, you have too much money and you must ‘spend down’ before you are eligible for Medicaid coverage. Those excess assets are called the ‘spenddown’ amount. That is the exact opposite of protecting your assets from Medicaid.
You’ve Got Medicaid Asset Protection All Wrong
The classic ‘spend down’ technique is to pay for the nursing home bill (or other types of assistance bills) using your assets until you've reduced your life savings to the point that you qualify for Medicaid coverage of said bills.
In most cases, however, you do not have to spend down any of your assets. Instead, you can essentially convert an asset that Medicaid counts into one that is not countable.
Rather than spending money on something that Medicaid can ultimately pay for, you instead pay for something that will benefit you or your family, yet not be considered a gift or a countable asset.
Before You Close This and Start Transferring Assets…
There are some intelligent ways to spend down; but, before you do so, you should always seek professional advice from an Elder Law Attorney or a Senior Planning Specialist. The consequences of making transfers that are not eligible for exemption can be severe and include rendering the applicant ineligible for Medicaid.
Annuities and Medicaid Guidelines
So how do you know if an annuity meets Medicaid guidelines? There is specific, legal-language used in the architecture of your Annuity. Most often, annuities are purchased from a Financial Adviser and are not drafted for Medicaid Qualifications. Financial Advisors mean well; but, do not possess comprehensive knowledge regarding the complex- laws and regulations. So- it’s essential that you have your Annuity reviewed by an expert.
Converting Tax-Deferred Annuities
Can your tax-deferred annuity be converted into a Medicaid compliant annuity? Yes, a tax-deferred annuity can be converted into a compliant annuity. If the current carrier does not provide a Medicaid compliant annuity, the tax-deferred annuity can be ‘transferred’ to the desired carrier by way of a 1035 exchange. It’s important that you contact a Medicaid planning specialist, rather than a broker or insurance provider.
IRAs -- A Powerful Asset Preservation Tool
You probably already know that an IRA can be an effective way to save for retirement; but, you may not be aware that an IRA can also be a powerful estate-planning tool.
Enter the Stretch IRA
The "stretch IRA" is not a new type of Individual Retirement Account – it’s not even a new idea. It has been available for some time, and is a method for transferring wealth – allowing you the opportunity to ‘stretch’ your IRA over several future generations. Yet another strategy for protecting your assets from spend-down.
Stretch IRAs and Passing on Wealth
Upon death, IRA’s are passed on by contract or beneficiary designation. Most IRA owners name their spouse as the primary beneficiary and their children as the contingent beneficiaries.
There is nothing wrong with the above strategy; but, it may require the beneficiary takes on more taxable income from the IRA than he/she really needs when they inherit the IRA.
If additional income is not immediately needed by the spouse and children-, then naming younger beneficiaries (such your grandchildren or great-grandchildren) may be a great decision, as it allows the value of the IRA to stretch over future generations.
This strategy is ideal because the younger the beneficiary – the lower the minimum distribution requirement will be.
Why Include an IRA into an Annuity?
Placing an annuity inside your IRA would be applicable if your goal is to preserve assets, specifically, from the cost of nursing homes & long-term care.
For individuals that aren't planning on accessing their IRA except through Required Minimum Distributions, there are specific annuity strategies that would be an appropriate choice to leave a legacy to your heirs.
Some annuities have a “death benefit rider” that can be added to the policy. This will allow your annuity to grow a specific percentage (while offsetting Required Minimum Distribution at the same time).
When positioned properly and combined with the right “death benefit rider”, you will be able to take the Required Minimum Distributions for as long as you live and not decrease the principal.
Imagine this, your age makes you eligible for Medicaid, however, you have mounting medical and/or assisted living expenses. You’ve put in your time and you want to preserve what you have already earned. But you have too much income to qualify for Medicaid afforded to so many other individuals. So what happens… you need to spend down your assets until your income qualifies. But that is not the only solution. Below, we explore Medicaid protection options, specifically, all about annuities.
Financial Planner vs Senior Planning Specialist
To be clear, preparing for Medicaid asset protections is not the same as speaking with a financial planner. Senior planning specialists have a unique understanding of using annuities specifically for asset preservation and estate planning.
For more information: Contact Senior Care of Michigan below to speak with a Senior Planning Expert.