Qualified Income Trusts Revisited (Part 2)
Last week I said I would share with you my experiences filing applications with Qualified Income Trusts (Miller Trusts) which are required when an applicant has income over Medicaid’s strict income cap ($2199 for 2015). The rules are very technical. Income can’t be split. If I receive $1500 from Social Security and $1600 from a pension I can’t simply transfer $1000, the excess income over $2199, to the QIT each month. I must transfer one whole source of income to the trust. In other words, I can’t split any one source of income. The whole Social Security amount or the whole pension amount must be transferred. In some counties there seemed to be confusion about which applications needed QITs and which didn’t. Filing an application for a Medicaid start date of November 1, 2014, before the regulations changed did not require a QIT, however, I had more than one caseworker tell me in January or April, 2015, when they were still reviewing our application that now a QIT was required. They were wrong. Applications filed requesting Medicaid pickup dates before December 1, 2015 do not require a QIT. They are approved under New Jersey’s Medically Needy Medicaid program. Likewise,
Qualified Income Trusts Revisited
It has been 7 months now since New Jersey eliminated its Medically Needy Medicaid program and as a result brought back Miller trusts. I detailed the changes in my posts of October 13 and October 20, 2014. The changes actually went into effect December 1, 2014. How have these changes been implemented? I am always skeptical of how smoothly the state will integrate any changes. New Jersey doesn’t have a good track record there and I was fearful that there would be problems. I wasn’t wrong and I will share with you some of my experiences to date. Before I do that, however, let’s briefly review the changes. Medicaid has a strict income cap ($2199/mo in 2015). For applicants with gross income exceeding that number, they are ineligible for Medicaid under what is called the “Medicaid Only” program. When we talk about income, we are focused generally on Social Security and pensions, those sources that are received as long as you live and only change for cost of living increases. You can’t call up Social Security and ask for less money. There was, however, a second Medicaid program that covered nursing home care for individuals over the income limit, what
Planning Before the First Spouse Dies (Part 2)
Last week I was telling you about Mary’s call. Her mom is in a nursing home paying $11,000 per month and her sister, Terry is in a group home. Mary doesn’t want to spend down all of Mom’s assets towards her care. She wants to be able to save some for her sister’s needs, as well as an inheritance for herself, as her parents had intended. Setting up a trust now for Terry is an option but only for Terry. While a transfer to that trust is exempt from Medicaid’s penalty provisions, none of the funds placed in the trust can be used for Mary’s benefit and Terry doesn’t have so many needs. Probably $150,000 in trust for her would be more than sufficient but whatever isn’t transferred to the trust will have to be spent down. There is Mary’s dilemma. She could put more than that in Terry’s trust but it will sit there, probably never needed. Had her parents put a better plan in place before Dad died, however, they could have accomplished the desired result. What they should have done is change their wills so that upon the first spouse’s death, his/her assets pass to an
Planning Before the First Spouse Dies
Mary called because her mom was in a nursing home paying $11,000 per month. Her sister, Terry, disabled and living with Mom for many years, had her own health problems and was now living in a group home. I asked about her mom’s finances. Mary told me she owned a home worth $450,000 and had another $175,000 in liquid assets. Mary’s question to me was “Can we save any of Mom’s assets and qualify for Medicaid?” Mary was concerned about how to care for Terry. She pointed out that “Mom’s will leaves everything to me so that I can use some of those funds for Terry’s care”. I explained that unfortunately this doesn’t help now. If Mom passes away, Mary will inherit what is left of Mom’s estate and she can use those funds to help care for Terry without concern that Terry will have to spend down those assets before qualifying for Medicaid or fear of losing Medicaid if she already is receiving it. That’s because the assets will never pass to Terry. The problem, however, is that Mom currently owns them and can’t qualify for Medicaid to cover her own care until she either spends down the
The Problem with IRAs – The Solution
So, what is the solution to Bill’s IRA problem from last week? He has $1.2 million in IRA money and doesn’t want to risk losing it all to long term care if he gets sick. But protecting it by moving it to a trust will cause him to pay a lot in income taxes. What if it turns out that he never needs long term care? Is there something that allows him to protect the asset without incurring the tax? The answer is a specific type of insurance product, an individual retirement annuity and 20 pay whole life insurance policy with an accelerated death benefit for qualifying long term care expenses. This means that if Bill needs long term care, he can draw against the benefit on a monthly basis to cover care at home, in an assisted living facility or in a nursing home. How exactly will this protect his IRA? By repositioning a part of his IRA to this product, which he will use to pay long term care, he can protect the rest of it without withdrawing it which would require him to then pay taxes. He doesn’t pay any tax on the part
The Problem with IRAs – Part 2)
Last week I was explaining the problem with IRAs and long term care. If you need care at $125,000 per year or more but want to protect your IRA, what are your options? It’s always easiest to illustrate by way of an example. Bill has an IRA worth $1.2 million and he doesn’t have long term care insurance. Bill has two ways to pay for his care. Use his own money or apply for Medicaid benefits. However, Bill must have no more than $2000 in assets to his name if he wants to qualify for Medicaid (a bit more if he is married). So, Bill must first spend the $1.2 million before Medicaid will begin paying. “What about if Bill transfers his money out of his name”, you may ask? That’s what we call 5 year trust planning. Move the assets into a trust, leave enough to cover 5 years and then Bill can qualify for Medicaid. While statistically the odds are that Bill will need the care, we can’t say for sure. What if he passes away peacefully in his sleep and never needs care? Pulling $1.2 million out of his IRA will cost him somewhere in the