Success Story of the Month – The Wait and See Approach

07 Sep Success Story of the Month – The Wait and See Approach

Sometimes the best plan is to play a waiting game.  The facts:

CASE FACTS:

Parent, a 71 year old widow, is in a skilled nursing facility and would save approximately $2000 per month (the difference between the cost of care and parent’s income including monthly long-term care insurance payments) if long-term care Medicaid eligibility is obtained.  Parent has a $300,000 term life insurance policy, $8,000 in checking and saving accounts and a homestead.  Parent’s deceased spouse has 2 retirement accounts worth approximately $200,000.  Parent is to inherit an IRA from his deceased spouse who died prior to the age for required minimum distributions (RMDs).  The institutionalized parent has been given 6 months to choose from one of 3 options in connection with the retirement accounts:

1. Take a monthly income stream in the amount of $580 that terminates at parent’s death;
2. Take a lump sum and pay the income taxes; or
3. Roll it over into a retirement account in the surviving spouse’s (the parent’s) name.

Doctor believes parent may die in a year, but son thinks he will live longer.

Son (an only child) is currently unemployed and has no source of income.  Son has used up almost all of his own assets.  Son is trying to find work but may have to depend on parent if he doesn’t find a job soon.  Son lives in parent’s home, and he is single.  Parent has mental capacity.

RELEVANT MEDICAID ISSUES:

1. If the equity in the homestead is less than $752,000 (if the applicant is single) it does not count as a resource if the applicant indicates there is an intent to return home (which would be the case here).
2. Term life insurance does not count as a resource since it has no cash value.
3. The countable resource limit is $2,000 as of the first day of a month at 12:01 am.
4. An IRA is a non-countable resource if there are RMDs to the Medicaid applicant.  RMDs are not required until age 73.  Parent is 71.  However, in Texas, if an annuity is purchased within an IRA, it does not count as a resource as of the 1st day of the month after the annuity is purchased within the IRA.
5. The homestead is protected from Medicaid estate recovery if there is an unmarried adult child living in the home at least 1 year prior to the death of the Medicaid recipient (although it is generally better to have a Ladybird Deed or a Transfer on Death Deed).

GOALS AND PLAN:

Son is to make his best effort to get a job.  Son will use his own assets for as long as his assets will last and use parent’s assets to pay the $2000 monthly spread for cost of care out of the parent’s checking account.

Parent to choose the option of a rollover of the IRA, especially if it is anticipated that there will be a Medicaid application.  A lifetime income stream is not chosen since dad has a limited life expectancy.  If parent cashes in the retirement account and pays the taxes, then the amount left would count as a resource putting parent farther away from the $2000 countable resource limit.

After the IRA has been rolled over, then there will be a determination in a couple of months to see if son found a job and if the life expectancy of parent has changed.

If parent’s life expectancy is short or son is unable to find employment, then it will be better to not apply for Medicaid.  Otherwise, the annuity will be purchased within the IRA (so it would not count as a resource for Medicaid eligibility) and parent should probably sign either a Ladybird deed or a Transfer on Death deed (although son would also have the unmarried adult child exception from Medicaid estate recovery if that didn’t occur).  Parent should also sign a power of attorney that permits gifting (in the event that son could not find a job quickly and some funds were supporting him) as there are certain gifting strategies that can be used (if needed for Medicaid planning). The power of attorney should also give the agent the ability to create trusts since parent’s income exceeds the monthly income limit of $2982 and there is no guarantee that parent will have mental capacity at the time of the application.  If an applicant’s income exceeds the cap, a qualified income trust can be created by the agent to avoid the income to be counted toward the cap.  Most powers of attorney do not give the ability of the agent to create a qualified income trust.

Sometimes it is best to bide your time as good things often come to those who wait.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.