The lead attorney for the Texas Health and Human Services Commission announced a major policy clarification on the treatment of retirement accounts as a non-countable resource for long-term care Medicaid eligibility purposes. Since long-term care Medicaid (which helps pay for nursing home care costs and drug costs – not to mention there are other Medicaid programs that help pay for assisted living care and at home care costs) is “means-tested” (the state considers your assets and the nature of your assets before they will pay for some or all of your care costs and medications) and since retirement accounts and homesteads are generally the largest resources most Texans possess, this announcement is monumental.

Although a written policy clarification of the treatment of traditional IRAs, 401(ks), Roth IRAs and SEPs has not been made (so we will report the final changes after that has been made), it was announced that if a Medicaid applicant owns a traditional IRA, 401(k), SEP or Roth IRA and if minimum required distributions are being made (usually at age 70½), then such retirement account would not be “countable” toward the resource limit – no matter how the retirement account was invested or the value of the retirement account. Previously a retirement account would not count if invested in an annuity. So, for example, if the Medicaid applicant is single (which has a $2,000 countable resource limit in Texas) and the applicant only has a checking account with $2,000 or less and a $200,000 retirement account, then all the applicant previously had to do to obtain Medicaid eligibility was to purchase any type of annuity within their retirement account. Apparently, this is still the case for those under age 70½. As a result, many applicants (if under age 70½) will simply purchase deferred annuities within their retirement accounts to avoid Medicaid “spenddown” and achieve eligibility for governmental care assistance as mentioned above.

However, the announcement leaves many unanswered questions including:

  1. What if minimum required distributions are being made before age 70½ (some states simply require the retirement account to be in “payout” status be exempt)?
  2. Will inherited retirement accounts “count”?
  3. If Medicaid applicant’s retirement accounts do not “count” since in “payout” status, would the applicant have to invest in an annuity if the applicant is under 70½?
  4. Would a spousal rollover “count” as a resource for Medicaid?
  5. Will it make a difference if a spousal rollover retirement account is in “payout” status? In other words, if the surviving spouse is under age 70½ and has a retirement account that is not in “payout” status, could the applicant purchase an annuity for it to be excluded?
  6. Will Roth IRAs continue to be excluded? Although there is no indication that Texas policy will change, some states count Roths as a resource. Texas does count as an asset a 403(b) retirement – typically owned by government workers and teachers.
  7. Is the policy effective immediately or only upon written publication clarification? Obviously this makes a big difference to many presently applying.
  8. Since Medicaid looks at the resources of a married couple even if only one is applying and even if they have a pre-nuptial or post-nuptial agreement (the countable resource limit is much higher if married), will the retirement account of the well spouse (the one who lives in the community and is often referred to as the “community spouse”) not count regardless of investment if in “payout” status?

Hopefully these questions (and probably more) will be answered by written policy clarification.

If interested in knowing more about this topic or about estate planning, Medicaid, VA benefits, etc., attend one of our free “Estate Planning Essentials” workshops to be held on Thursday, September 13, 2018 at 1:00 p.m. or on Saturday, October 6, 2018 at 10:00 a.m. or by calling (214) 720-0102 or signing up on our website www.dallaselderlawyer.com by clicking here.

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