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ELDER LAW PROTECTING YOUR ESTATE
CONTACT: (313) 561-5700
How to Protect Your Estate While Using MediCaid
You have worked hard all your life and planned ahead for your retirement years. You have recently been informed that a loved one is in need of a nursing home. You are surprised to find out that nursing home care costs upwards of $6,000 per month. What should you do?
The total amount of assets is not relevant when determining if a person qualifies for Medicaid. Instead, “countable assets” determine whether one qualifies for Medicaid. If the countable assets are in excess of the Medicaid limit, then planning is necessary to qualify for Medicaid. An attorney can advise a person how to spend the excess assets on exempt property. Some examples of exempt property are the homestead, homestead repairs and improvements, an automobile, and personal and household goods. In addition, the purchase of certain prepaid funeral expenses and the payment of bona fide debt and expenses are legitimate ways to use excess assets without incurring any penalty in the Medicaid program.
If You Are Interested in Learning More
If you are interested in learning more about protecting your assets while still being able to qualify for Medicaid benefits, we invite you to consult with our Elder Law specialist, Attorney Michael D. Eberth.
Three Penalty-Free Ways to Withdraw IRA Funds
Many retirement savers believe that they may not withdraw their Individual Retirement Account (IRA) contributions before they reach age 59 1/2 without incurring a 10% tax penalty. Yet, with some restrictions, current tax law allows traditional IRA and Roth IRA owners to withdraw a portion of their IRA money in “substantially equal” amounts each year without being penalized.
Should you need the early use of your IRA funds, the Internal Revenue Service has generally approved three methods for withdrawing funds without penalty. (The amount withdrawn is still subject to ordinary income tax.)
The three withdrawal methods:
1. Life Expectancy Payout is the simplest way to calculate penalty-free IRA withdrawals for a particular year. IRS Publication 590, Individual Retirement Arrangements, provides life expectancy information to factor into the value of funds in your IRA as of December 31. The result will be the penalty-free amount that may be with drawn during the next year. You can obtain a copy of this publication by clicking on the Nichols & Eberth web site, MichiganAttorney.com, and then clicking on the link to IRS forms and documents.
2. Life Expectancy Amortization allows you to: a.determine your life expectancy from the IRS tables,
b.work with your tax advisor to determine the reasonable rate of interest or return your IRA should earn, and
c.determine how much would have to be withdrawn in equal payments from the IRA balances each year in order to reach zero at the estimated time of death.
3. Annuity Payout is similar to Life Expectancy Amortization, but this method is likely to provide you with a larger annual penalty-free payout from your IRA because it permits you and your tax advisor to choose any reasonable mortality table to determine lifespan. (Such tables may assume a shorter lifespan than IRS tables, resulting in larger annual payments.) Once an expected lifespan has been determined, you and your tax advisor can choose a reasonable interest rate to calculate the annuity factor and then divide that annuity factor into the account balance.
No matter what method of payment you select, your payment schedule must meet the following rules:
- Annual payments must be in substantially equal amounts.
- If the payment schedule is changed or is topped prematurely, all distributions up to that time will become subject to the 10 percent penalty tax. For this reason, you may wish to split your IRAs taking periodic payments from one IRA, while maintaining a separate IRA for long-term investments and emergency withdrawals.
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