My wife and I are elderly. I have an individual retirement account (IRA) worth about $100,000 and we have set up a trust through our children to protect our assets. If one or both of us have to go into a nursing home, can they take our IRA with them? What do we need to do to protect it?
-Dawn
Long-term care (LTC), which may include a stay in a nursing home, is expensive and can quickly eat up money you actually intended for something else.
How do you prevent this from happening? The specific answer depends on variables you haven’t disclosed. But in my experience, when people talk about “protecting” assets from long-term care costs, they often have Medicaid in mind. So what does that look like? (And if you need more help planning for long-term care costs, consider working with a financial advisor.)
Qualifying for Long-Term Care Through Medicaid
Medicaid is often seen as a “safer” option for long-term care for the simple reason that it’s less expensive and therefore less likely to deplete your assets. But Medicaid eligibility is determined by strict income and asset limits. While those limits vary by state, an IRA of $100,000 will likely disqualify you from Medicaid coverage.
You are now faced with a paradox: the wealth you want to save through cheap care is actually an obstacle to getting cheap care in the first place.
At this point, an estate attorney or well-meaning friend may suggest that you rearrange your assets so that they do not fall under the eligibility limits. The idea is to make yourself less wealthy on paper to qualify for Medicaid without actually giving away your assets.
If this sounds daunting, that’s because it often is. For one thing, many states have a five-year look-back period for determining Medicaid eligibility. This means that if you do some complicated asset restructuring in the five years before applying, your efforts will be for naught. (And if you need help determining your Medicaid eligibility, consider hiring a financial advisor.)
3 Ways to Protect Your Assets from Medicaid
If you’re ready to be matched with local advisors who can help you achieve your financial goals, start now.
If you are willing to plan ahead and do your homework, there are a few options for moving your belongings so you may qualify for Medicaid.
-
Annuities: Any money you put into a “Medicaid-compliant” annuity does not count toward your asset limit and is also exempt from the look-back period. The catch – and it’s a big catch – is that the money is completely tied up except for the periodic payment you receive from the annuity. And that payment counts toward the income limit.
-
Equity of home: In most cases, the equity in your primary home does not count toward the Medicaid asset limit. So you can protect your equity by using it to pay your mortgage or even make home improvements. But the lookback period applies here too, and in some states the government can take a portion of your equity to cover the cost of care after you die.
-
Trust relationships: You mentioned that you already had a trust set up, but there is a type of trust that is specifically designed for this situation. When you put your money into a Medicaid Asset Protection Trust (MAPT), you are essentially transferring it to someone else, so it is technically no longer yours and does not count toward your Medicaid eligibility. Remember, the transfer must be completed for five years before you receive Medicaid.
As you may have noticed, the common problem with these methods is that they drastically limit what you can do with your wealth. And by taking away your financial independence, they leave you poor in reality—not just on paper. (And if you need help implementing any of these strategies, consider hiring a financial advisor.)
That may be better than the alternatives, but it depends on another variable: Why do you want to protect your assets from long-term care costs, including nursing home costs, in the first place?
Is cheap healthcare worth it?
The options discussed above often make the most sense as estate planning measures. If you don’t expect to use your assets yourself and are instead concerned with preserving them for your heirs, it may not matter whether they are tied up in a trust, an annuity, or your home value.
But there’s still an elephant in the room. Remember, these asset protection techniques ultimately give you low-cost health care and long-term care. And that can impact your access to care and its overall quality.
Ask yourself this: What are you trying to “protect” your money for? Is it worth all the hassle and risk of mediocre care in your final years? Maybe if you want to leave a significant inheritance or save assets for your spouse. (And if you need more help with estate planning, consider working with a financial advisor.)
Next steps
A middle-of-the-road solution may be the best course of action. Something like long-term care insurance or an aging-in-place strategy may not fully protect your assets from long-term care costs. But such an option can reduce those costs while still providing the care that preserves your quality of life.
Remember that saving money is ultimately for your well-being and that of your loved ones, not just for the sake of saving.
Tips for finding a financial advisor
-
Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisors for free to determine which one is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
-
Consider a few advisors before choosing one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
-
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Graham Miller, CFP® is a SmartAsset financial planning columnist who answers readers’ questions about personal finance. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note: Graham is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset. He was compensated for this article. Find more financial insights from Graham on the Wiegand Financial blog.
Photo credits: ©iStock.com/shapecharge, ©iStock.com/Ridofranz
The post Ask an Advisor: Can a Nursing Home ‘Take Over Our IRA?’ My wife and I are elderly. We have a $100,000 IRA and a trust to protect our assets. appeared first on SmartAsset Blog.
