How Can I Protect IRA from Medicaid Spend Down if I Go to a Nursing Home?
I am 72 years old and in fair to poor health. My wife is 70 and in good health. We have two children—42 and 40. We own our home mortgage-free and have several thousand dollars in mutual fund IRAs in my name. If I go to a nursing home, how can I shelter the maximum from an asset spend down?
Your challenge is that the IRAs are in your name. If you move to a nursing home, you will be eligible for Medicaid coverage when your and your wife’s assets other than the house have been spent down to approximately $150,000. The excess over this amount can be preserved through a number of strategies, including a transfer to an irrevocable trust, to your children, or to your wife by purchasing a qualifying annuity. Any transfer, whether to a trust or to your children, must occur at least five years before you apply for benefits. There’s no such requirement for the annuity purchase.
The problem with a transfer, in addition to giving away your money, is that you would have to liquidate your IRA and pay the taxes on it. This is also true of the annuity approach, but there’s not the same urgency for the annuity to do it now to make sure it occurs at least five years before you move to a nursing home. The problem with withdrawing all of your IRAs now is not only that you’ll pay taxes sooner, but you’ll probably pay them at a higher rate. So, my advice would be to withdraw the IRA funds over several years and transfer the proceeds into an account in your wife’s name. You should be able to calibrate the withdrawals so as not to push yourselves into too high a tax bracket, accelerating the payment of taxes but not increasing the amount of taxes by too much.
It would also make sense for your wife to redo her will, creating a testamentary trust for you, just in case she were to die before you. Along with that, you might want to put the house in her name.
Finally, confirm this advice with a local elder law attorney. While the strategy I describe would work in Massachusetts, where I practice, each state applies the Medicaid rules a bit differently. You need to make sure that the annuity strategy works in your state and that there are no other options that might work just as well or better. You can find a qualified elder law attorney at www.elderlawanswers.com.