? five year medicaid rule
My bachelor uncle is 72 but still in relatively good health. He has an Ira and Ira rollover. He would like to take his annual RMD and give it to his grand nephew who is 22 yrs. old to help with his ongoing medical education.
Should my uncle require nursing home care when he is say 73 or 74 would these give aways have any impact on the timing for him to be eligible for medicaid?
Permalink Submitted by Alan Spross on Sat, 2010-02-13 18:41
Yes. Gifts made within 5 years will extend the Medicaid eligibility date. I believe the length of the extension is based on the state’s annual nursing home cost. For example, if it is 84,000 per year, a gift of 7,000 would delay the eligibility for a month. I think that the enforcement mechanics of this may vary considerably from state to state.
And states with the largest budget problems are the ones cutting state govt staff the fastest possibly including those that process the applications.
Permalink Submitted by Ann Taylor on Sat, 2010-02-13 21:07
I understand your answer but let me ask one further in this regard. What if my uncle decided he wanted to take his yearly RMD and just blow it on whatever he would enjoy.
It seems that if your answer is true, and I do not state this as a question of your answer, then are we not saying that he cannot spend his own money in anyway he sees fit without incurring a penalty???
To add to this question what if he decided to pay the tax consequences and just cash out his ira and ira rollover. Can he actually be penalized for spending his own money?
Permalink Submitted by Alan Spross on Sat, 2010-02-13 21:24
Sure, he can spend it without any penalties. Except that he might run out of money sooner and end up broke while still being in decent health. If not in decent health, he would then just go on Medicaid sooner if he ran out of funds.
Also, taking out too much in a single year would inflate his tax bracket and more would be lost to taxes.
If he is subject to RMDs, the only penalty he could incur is for failing to take out ENOUGH to meet the RMD.
Permalink Submitted by Ann Taylor on Sat, 2010-02-13 22:28
Hmmm, this doesn’t sound quite right.
If he gifts it then the five year rule for medicaid eligibility is in effect however if he spends it himself and needs to go to a nursing home the five year rule no longer exists?
Are you sure???
Permalink Submitted by Alan Spross on Sat, 2010-02-13 23:10
Yes. See following from article on Medicaid:
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Spending Fruitfully and Converting Excess Resources into Exempt Items
Once an individual qualifies for Medicaid, only the modest Medicaid resource cap (plus community spouse resource allowance if married) will be available to supplement the basic needs Medicaid covers. Therefore, it makes sense for families to buy items they would want later anyway with resources the family must dissipate to qualify for Medicaid. Similarly, value can be preserved by converting excess resources into assets that are exempt such as by modernizing a bathroom in the marital home. Thus, rather than spend the community spouse resource allowance on clothes, the community spouse can purchase clothes with excess resources that she and her husband must spend down to qualify him for Medicaid. Typical fruitful spend downs include ordinary household goods, services, acquisition or improvement of home and vehicle for the community spouse, travel, and Medicaid qualified prepaid funeral accounts.
Medicaid applicants sometimes can preserve amounts by converting excess Medicaid countable resources into an income stream that isn’t Medicaid disqualifying. Because this approach still is evolving, it isn’t clear how successful it will prove. In any case, a conversion plan and implementing documents must be custom drawn for each Medicaid applicant to take account of the many applicable variables and individual circumstances, alternatives, and risk tolerance.
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Permalink Submitted by Ann Taylor on Sun, 2010-02-14 17:48
I don’t suppose there is a list of what’s acceptable fruitful spend down for medicaid is there?
The way the govt. works that would be too easy.
That could an impossible list that could include clothes, food, entertainment, travel, etc. Is there just some annual rule of thumb accepted number/yr for that calculation?