Retirement Assets and Medicaid Planning

by Jerrold Bartholomew

Nest EggRetirement assets (401ks, IRAs, etc) are considered available assets for purposes of Medicaid qualification in Michigan. In simple terms, that means that those funds have to be spent down until the threshold for asset eligibility is met. In the case of a single person, asset eligibility is generally about $2,000.00, with some additional allowances for the homestead, modest life insurance and funeral expenses. In the case of a married person, the threshold is higher, and will be between $20,880.00 and $104,400.00, depending on the couple’s assets before entering the nursing home. For more details, see The Basics of Medicaid Qualification, below.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Retirement assets present some of the most difficult problems in elder law, but there are solutions. With some intricate planning, one can use a solely for the benefit of trust, for example to preserve the tax-deferred funds and obtain qualification. This is an important alternative for families to consider so that retirement assets are not unnecessarily depleted by the cost of long-term care or restricted to minimal returns and subjected to estate recovery.

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