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  • Writer's pictureAmber Hinds

Planning Options for the Medicaid Applicant/Institutionalized Spouse’s Qualified Retirement Account

When implementing Medicaid planning for a married couple, typically one spouse is in a facility and the other spouse remains at home or in the community. The spouse in the facility is usually referred to as the institutionalized spouse or the Medicaid applicant, while the spouse at home is referred to as the community spouse. In most states, the institutionalized spouse may keep only $2,000 in liquid resources while the community spouse is able to keep up to $128,640.

If you have clients who have more assets than the “allowable limits” outlined above, your clients must spend-down or convert countable assets into non-countable assets in order to be eligible for Medicaid. Spending-down or converting countable assets into non-countable assets is pretty simple when we’re dealing with post-tax accounts (checking, savings, CDs, etc.) because we don’t have to be concerned about any adverse tax consequences and because spouses may transfer assets between one another without penalty. Medicaid Planning becomes a lot more difficult when there are qualified/pre-tax accounts involved, especially when the qualified account is owned by the spouse that needs care and the qualified account is a countable asset[1]. Changing ownership of a qualified account from husband to wife or transferring into a trust causes a taxable event. Therefore, manipulating/moving qualified accounts around will result in your clients paying taxes on the account.

So, what can we do if the institutionalized spouse owns a qualified/IRA account? Below are five options your clients may consider:

  • Option 1 – Do Nothing / Privately Pay

  • Option 2 – Liquidate IS’ qualified account and transfer net proceeds to CS (pay all taxes up front)

  • Option 3 – Convert IS’ qualified account into a Tax-Qualified Medicaid Compliant Annuity (MCA)

  • Option 4 – Use Name on Check Rule

  • Option 5 – Implement an InMarriage QDRO®

Options 3 and 4 are used when the institutionalized spouse’s IRA is a countable resource and needs to be spent-down/converted into a non-countable resource in order for the IS to secure Medicaid eligibility. The only difference between Option 3 and Option 4 is whether the IS or CS is named as the payee. Under Option number 3, the IS is named as the payee while under Option 4, the CS is named as the payee. The decision to name the IS or the CS as the payee will come down to the couple’s existing income and the Monthly Maintenance Needs Allowance (MMNA). If Option 4 is used and if the state Medicaid office recognizes name on the check rule, the income from the MCA will be deemed to belong to the community spouse. Qualified Domestic Relations Orders (QDROs) are typically used to divide qualified funds between divorcing spouses after a property settlement. In Marriage QDRO® utilizes the same statutory authority to facilitate the transfer of funds between happily married spouses — from a husband’s IRA to a wife’s IRA, for example — giving the couple greater investment flexibility and a host of other benefits.

At AshBer, we specialize in Medicaid Compliant Annuities to help your clients pay for long-term care.Our standing relationships with attorneys and financial advisors across the country enable us to provide the best service no matter where you reside. We would love to help you solve your clients’ long-term care solutions.Contact our office today at (888) 441.1595.

[1] Currently 40 states consider the qualified retirement account of the institutionalized spouse (IS) to be a countable resource.

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