Given the high cost of nursing home care, I often discuss with clients how to protect and manage their estates in the face of this risk. Some clients may need to count on Medicaid to help cover those expenses at some point. The plain fact is that qualifying for Medicaid could threaten your retirement nest egg. All of us have received the advise for years that the best way to save retirement is to maximize tax deferral by funding work related retirement accounts or an Individual Retirement Account (IRA). Unfortunately, what might be a great retirement planning device can be a challenge when it comes to qualifying and protecting assets in applying for Medicaid.
The Importance of Long-Term Care Planning
When you reach retirement age, your odds of needing long-term care (LTC) will increase each year. The longer you live, the higher the odds that you will end up in a nursing home. The nationwide average for a year in LTC for 2020 was over $100,000. If you are a North Carolina resident, you can expect to pay a bit less than the national average. For 2020, the average yearly cost of LTC in North Carolina was just under $100,000. Like most seniors, you may rely on Medicare to cover most of your healthcare expenses once you retire; however, because Medicare excludes LTC, you won’t be able to turn to Medicare for help with your LTC bill. Unfortunately, most health insurance policies also exclude LTC expenses. Medicaid does cover LTC expenses, which is why over half of all seniors currently in an LTC facility rely on Medicaid for help paying their bills. Qualifying for Medicaid, however, can put your assets at risk because of the asset thresholds imposed by the program.
You might lose Your IRA through the Medicaid Spend-Down Requirements
In North Carolina, Medicaid will count your IRA or 401k as an available source of funds. To qualify for Medicaid, an applicant and his or her spouse, if applicable, must meet assets limits. Specifically, the value of your “countable resources” for the applicant must fall below the program’s limit which is $2,000 for an individual. If you have countable resources valued in excess of the limit when you apply, Medicaid will deny your application and expect you to “spend down” your resources in order to qualify. Fortunately, some assets are exempt from consideration when applying for Medicaid. This means there are opportunities to protect otherwise countable assets — sometimes even at the last minute before application — by converting countable assets into income or noncountable assets. If this sounds complicated, it is. If it sounds like there are a lot of potential missteps with this kind of planning, you are right. That’s why it is critical to work with lawyers experienced with Medicaid Planning.
The Challenge of Planning with Retirement Accounts
The process of “spending it down” or converting it to a noncountable assets is more complicated and certainly more painful when it comes to IRAs or other retirement accounts. Why? Because when you take the money out of the retirement account, you have to pay the applicable income tax on the withdrawal. Things will be easier as you approach the application date if the impact of this tax has been reduced by withdrawals in the years or months before application. This means when you begin to sense that you, a spouse, or a parent may have a Medicaid application on the horizon, it is important to immediately begin a conversation with an experienced Medicaid Planning Attorney. It may be that the advice you have gotten to never spend more than the required minimum distribution from the retirement account unless you need it may need to be reconsidered in anticipation of a possible Medicaid application.
Contact Durham Medicaid Planning Attorneys
If you have additional questions or concerns about how Medicaid planning can help protect your IRA and other assets if you need to qualify for Medicaid, please contact the Medicaid planning attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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