How to Qualify for Medicaid Without Losing All Your Retirement

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By: Bill Henry
PublishedApr 27, 2020
4 minute read

If your spouse or parent needs long-term care in a nursing home but they cannot afford the cost, he or she will need Medicaid to cover the cost. When this happens, adult children and the well spouse often wonder what this means for the retired couple’s retirement accounts. In the following video, elder law attorney Bill Henry will show you how to qualify for Medicaid without losing all of your retirement.

Questions for Bill?

Email him directly at billhenry@robinsonandhenry.com. You can also set up a free meeting with Bill.

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Read the full transcript of Bill’s video below.

How to Qualify for Medicaid Without Losing Your Retirement

Today we’re going to focus on qualifying for Medicaid whenever you have retirement accounts. I’m going teach you a few strategies as well. My name is Bill Henry. I’m an Elder Law attorney with Robinson and Henry.

“If my wife goes into nursing home, I’m going to be completely destitute at some point because all of our money is going to go to this nursing home?” – recent client

How I Helped A Client Save Retirement

So let me tell you about a recent case I have that’ll be kind of the focus of today’s video. And so husband and wife, wife was going into the nursing home. Wife had $100,000 in an IRA, it was a traditional IRA.

And the husband had about $200,000 in an IRA, also a traditional IRA. And his question, rightfully so, was, “If my wife goes into nursing home, I’m going to be completely destitute at some point because all of our money is going to go to this nursing home?”

Average nursing home costs in Colorado is about $8,500 a month. So you could see that just after a little over two years, he’s completely out of money, and how’s he going to live the rest of his life?

They are both well retired at this point. So it’s not like he’s going to go back to work, nor does he want to go back to work. So is there anything that he can do? And the answer is yes, but let’s walk through sort of what happens in the calculations that you’re going to need to go through to figure this out.

Making Sense of the Calculations: The Asset Rule

So the first thing is we got to know what the rules are for qualification for Medicaid. And there’s a lot of rules, but we’re only going to focus on the asset rule for this video.

So the wife, whenever she goes in the nursing home, she’s only allowed to have $2,000 of countable assets. So here she has $100,000 IRA. So we know we at least have $98,000 of countable assets to deal with. The next issue is the husband has a $200,000 IRA.

So will his IRA be counted? So in other words, do we need to get that $300,000 all the way down to some lower qualification number, like that $2,000? And the answer is yes.

Medicaid counts both spouses assets, it doesn’t matter whose name is on title. So it doesn’t matter that it’s wife’s IRA versus the husband’s IRA.

So right now at the beginning of this story here we have $300,000. And now we know we need to get all the way down to $2,000. We have a big problem. We’ve got to look to see, is there any other way that we can exempt any more of this money? And the answer to that is also yes.

Because the husband is healthy and he is what’s known as the community spouse. He’s the well spouse. He has to continue living. The government doesn’t want him to be impoverished.

The Life-Saving Well Spouse Exemption

So they created an exemption. That exemption amount for 2020, is $128,640, so for our purposes for this video, we’re going to call it $129,000. So now we know start with 300,000 subtract 2000, then subtract another $129,000 off of that number.

So I did the math, and that’s going to leave us at $169,000 of assets that are still countable. So can we do better than this? Can we go further and try to protect more of this $169,000?

Well, the next thing is we can deduct from that number, the amount of taxes that are due. Well, what if we don’t know what amount of taxes that are due? The government says, Colorado says that, well then you could just take off 20%.

So if we take 20% off of the $169,000 for taxes, we’re down to $136,000. And again, that’s if we were to liquidate all this money. And that’s of course going to create a lot of tax liability. So not the best solution. And even after we do that, we still have $136,000 to deal with.

So our question is, is there anything else that we can do? And if you think about it, the assets have to be under the $2,000, for the wife going to the nursing home and then the husband’s credit, or exemption of $129,000. So if we don’t have all that money in the assets, in other words, if we bring our total asset number down, then we don’t have to worry about it. Well, how can we do that?

How to Reduce Your Total Assets

All we do, is we convert the retirement accounts over into an income stream, because although the well spouse, or husband in this case, is only allowed to have his credit of $129,000, he can have as much income as he wants after we qualify for Medicaid.

So what do we do? We create what’s called, or we use what’s called, a Medicaid compliant annuity.

Big warning here. It’s a very specialized type of annuity.

This is not something you want to just go down to your bank and do yourself. So you need to make sure that you’re working with someone that’s well-qualified on helping you figure out how to make sure you apply for these rules and you comply with these rules properly. Because if you don’t everything, you’re going to be disqualified, and I can’t tell you the number of issues you’re going to have. So make sure you do it right when you do this.

So you’re going to take that money. You could purchase a Medicaid compliant annuity, it is allowed under Colorado’s Medicaid rules, and then that creates an income stream for the husband.

It preserves that amount of money that wasn’t protected. Therefore, he can continue to live on it the rest of his life. And then, simultaneously and immediately, the wife has now qualified for Medicaid.

I’m Bill Henry, from Robinson and Henry, hope you found this useful. Also, do me a favor and share this video, trying to get this information out there. I find that there’s a lot of misinformation out there. Every state is different when we talk about Medicaid rules. I will talk to you next time.

Questions for Bill?

Email him directly at billhenry@robinsonandhenry.com. You can also set up a free meeting with Bill.

Robinson & Henry, P.C. now offers VIDEO MEETINGS

 

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