Irrevocable Medicaid Trusts

Home Estate Planning Irrevocable Medicaid Trusts

  • Avatar TheGipper 
    Status: Physician
    Posts: 407
    Joined: 01/20/2016

    My spouse’s parents are currently going through the process of transferring assets (home, tIRA, Roth IRA, taxable account) into an Irrevocable Medicaid Trust to avoid eventually losing it all to the nursing home/long term care.  There is a family of history of longevity and this occurring with many of their relatives.

    The painful thing about these trusts is that traditional and Roth IRAs can not be placed into them, but the IRA assets can be taken by the nursing home.  As such, all IRA assets need to be withdrawn and transferred to the trust, in this case into a taxable account in the trust.  For an IRA balance of almost 1M, this will incur some tax pain even if it is done as slowly as possible.  There is also the 5 year Medicaid lookback rule to invalidate sheltering from Medicaid, so there is urgency to get it done.

    My question is this:

    At what point (ie what IRA asset level/total income level) do the excess taxes paid by more rapidly withdrawing from an IRA outweight the benefits of setting up the Irrevocable Medicaid Trust at all, even if there is a decent likelihood based on family history that long term care will be needed.

    I understand that there is some state variability as to what constitutes income and Medicaid eligibility, particularly when it comes to IRA withdrawals, as well as some additional planning workarounds.

    I should add that I am not a fan at all of long term care insurance, so please no alternatives that include LTCi.

    Thanks in advance.

    #51454 Reply
    Avatar StarTrekDoc 
    Status: Physician
    Posts: 1897
    Joined: 01/15/2017

    Aside from the financial question, if you’re doing this for Medicaid Nursing Homes eligiblility — I would start by looking at the local NH that take Medicaid assignment and see if they would like to be in any of those institutions.   It’s highly variable.

    #51465 Reply
    Avatar TheGipper 
    Status: Physician
    Posts: 407
    Joined: 01/20/2016

    They’ve already done the research with local NHs and completely made up their mind about the Medicaid Trust (for better or worse).

    We have basically agreed to be the trustee and are helping them with the pace of IRA withdrawals to minimize taxes.

    I guess I’m really asking for the sake of my future self.  My planning up to now has always revolved around maximum tax deferral now with large Roth conversions in the early retirement years.  But yikes, what is the point of all this, if one must eventually expedite it back out of the IRA and into the Medicaid trust.

    I’m hoping our eventual asset levels will allow me to comfortably self insure for long term care.  But that is part of my question.  At what IRA asset level does the Medicaid trust no longer make sense?

    #51468 Reply

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