The most important change in Medicaid rules for financial advisors in a decade.
In recent months, the Texas Long-term Care Medicaid made an enormous change to the rules. For the savvy financial advisor, this change has the potential to explode your annuity sales. Imagine telling a client that you can help them get the care they need all while saving 100% of their IRA assets in the process. Intrigued? Read on…
The need for long-term care is exploding as our population ages. Just as the care need has dramatically increased, so have the costs. Long-term care expenses can exceed $60,000.00 annually for one individual. This not only impacts the economic security of the family, but reverberates around that family. If you, as a financial advisor, manage an IRA for a client who needs long-term care, you watch as the account slowly dissolves into nothing. It is not just the family’s bottom line being affected, but yours as well.
Spending those precious IRA assets was, in most cases, unnecessary.
If someone is paying for long-term care, they have three options:
- long-term care insurance
- paying in cash
(1) Anyone who has ever tried to sell long-term care insurance knows that the cost is prohibitive for many and even those who can afford it are not interested in paying the premiums. This is why only around seven percent of the population that needs long-term care actually has long-term care insurance.
(2) Likewise, there are few individuals that can privately pay expenses of $5,000.00 to $7,500.00 per month without taking a significant hit to their retirement assets.
(3) That leaves the third option of qualifying for Medicaid.
Long-term Care Medicaid is the only government program available to pay for nursing home costs.
To say that the rules and regulations surrounding Medicaid are complex is an understatement. Our firm has been navigating this maze for years and still discovers new provisions and techniques on a weekly basis. The purpose of this article is not to give you a detailed explanation of Medicaid. Rather it is to tell you of the most important change in Medicaid rulesfor financial advisors in a decade.
Medicaid determines eligibility for an individual by dividing their assets into countable resources and non-countable resources.
The non-countable resources have no effect on eligibility. The countable resources prevent the person from receiving benefits. So, for example, a home worth up to $535,000.00 is a non-countable asset while $25,000.00 in cash is a countable asset.
For a single person applying for Medicaid, their countable assets must generally total no more than $2,000.00. For a married couple the rules are a bit different, but for many couples where one spouse is in a facility and the other is at home, Medicaid will allow the at-home spouse to keep one half of the countable assets so long as the half is no more than roughly $115,000.00.
Most individuals have more than $2,000.00 and most couples cannot afford to lose half or more of their savings. Asset protection strategies are critical.
There are many ways of making a person eligible for Medicaid without losing everything. These range from the simple to the complex. In its simplest terms – getting someone qualified for Medicaid is a matter of either:
- spending the countable resources
- transferring them in of the Medicaid permitted ways
- converting the resources from countable to non-countable.
In the example above, we had a single person with $25,000.00. That could be spent by paying for care at the nursing home or, for example, it could be used to make improvements on the home. This later option is a simple way of converting countable cash into a non-countable home.
So why does this matter to a financial advisor?
For the vast majority of Americans, the two largest personal assets a family owns are their home and their IRA.
As discussed above, the home is a non-countable asset. IRAs, however, are generally countable.
Imagine a widowed client of yours who owns her home and has $100,000.00 in her IRA that you manage in a blended portfolio of stocks, bonds, mutual funds and the like. If this client needs long-term care, Medicaid will not pay for her until her countable assets are below $2,000.00. She would start making sizable withdrawals to cover her costs and you will see that IRA deplete to nothing in under two years.
Likewise, imagine a husband and wife where one of them needs long-term care and who own a home, car and IRA worth $300,000.00. Medicaid would expect this family to deplete that IRA to slightly more than $100,000.00 before they pay for the spouse in the facility. The remaining spouse now has to live her last years on one third of the retirement she had planned on.
It no longer has to be this way.
Due to a recent change in Texas Medicaid Policy, IRAs and other qualified accounts may be treated as either countable <or non-countable simply because of the investment structure.
Medicaid policy has a section on what they refer to as Employment and Retirement Related Annuities. In this section, it defines a Retirement Related Annuity as any type of annuity governed under Section 408(a), (b), (c), (k), (p) or (q) or under 408A of the Internal Revenue Code. These sections cover ANY annuity held in an IRA, SEP, SIMPLE, or Roth.
More importantly, the rule clearly states that Retirement Related Annuities are NOT a countable asset for Medicaid eligibility purposes.
This means that virtually any qualified annuity is no longer a countable asset for Medicaid under the new rules.
There is no better result than when everybody wins.
So let’s look at our examples again. That widow with a home and $100,000.00 IRA merely needs to have you purchase an annuity for $100,000.00 and that asset will not have to be spent before she qualifies for Medicaid. Likewise, the married couple with a home, car and $300,000.00 IRA need only have you purchase a $200,000.00 qualified annuity and the spouse in the facility can qualify for Medicaid while the retirement assets are preserved for the spouse at home.
- protected your client
- preserved their assets
- improved their quality of life
- salvaged your book of business before it was wasted
- and made a decent sale along the way
Right now you are thinking, I’ve got five clients I can name right now that need to know this! But don’t get too excited too fast.
If you were talking to a surgeon who told you of a brand new technique for heart replacement, you wouldn’t try to perform the surgery yourself.
Lining up assets so that a person qualifies for Medicaid is legal surgery and the consequences of doing it wrong can be just as catastrophic. Not to mention that any non-attorney who advises a person on Medicaid commits a Class A misdemeanor subject to jail and fines.
Understand that this new policy change is a big one but is still only one of the many ways that a person can protect their life savings.
From 529 accounts, ABLE accounts, Asset Protection Trusts, Lady Bird Deeds and many more, there is no reason a person must spend their last dollar paying for long-term care. There are options for everyone.
The Elder Law attorneys of Ross & Shoalmire, LLP have been advising clients on long-term care asset protection and estate planning for years. We assist clients across Texas and Arkansas with Medicaid, Veteran Benefits, Wills and Trusts daily and have a dedicated team of elder law attorneys and Medicaid/VA case workers that can help guide you and your client on the right path to protecting your client’s resources and preserving your book of business.
Initial consultations are always free of charge. Financial advisors can use us as a resource at any time for answers to questions and guidance.