My husband and I both have long term care insurance. The policies provide coverage for up to 5 years. We are both retired. We live in Massachusetts.
I'd like to know what, if anything, we can do with our 401k monies should one of us go into a nursing home. Something that would protect that money should we need to apply for Medicaid. I understand there is a 3 year look-back for gifts and a 5 year look-back for trusts.
Can a 401k be held in a trust? What type of trust? The remaining spouse will need money from the 401k/IRA for income, which is where the bulk of our retirement savings is.
You need to consult a lawyer who specializes in these issues. Your estate planning lawyer may have expertise or could refer you. Medicaid is a Federal/State program, and some rules can vary by state.
You need to engage an estate attorney, only he can give you the correct legal answer. NOTE that IANAL, now with that said -
401(k) money is tax deferred money that belongs to the employee whose name is on the account. Should something happen and you wind up in a home and the costs exceed your LTC policy limits you will be responsible for the difference. If you have INSUFFICIENT assets to pay for the care then you can apply for Medicaid - remember Medicaid is for the poor. Medicaid WILL look at your assets, including your
401(k) and until you spend your assets down to the allowable amount Medicaid will expect you to dip into those 401(k) dollars. So as long as you have 401(k) money you have some exposure.
Only a natural (real, live, breathing, heart-beating) person can establish a 401(K) account. A trust can be the beneficiary of a
401(k) account - but the trust only gets the money, or access to it, when the owner dies. So setting up a trust may not help you accomplish what you want to.
Depending on the specifics of your situation you may be able to draw down the 401(k)s, pay the tax and move the money into some other type of account (perhaps a joint retail account) that provides for the type of protection you're seeking.
The problem today is that there is NO WAY you can give us enough information your situation so that we can tell you exactly what to do to protect yourselves - and that's assuming that 1) you WANTED to share that kind of information here; 2) someone here WANTED to do it for free; and 3) YOU were willing to accept free advice from a stranger about something so important.
My advice to you is to find a local estate attorney and discuss your situation in detail.
Thanks for the comprehensive reply. I assume your answer is also true for an IRA account?
Actually I have no problem spending down, assuming that one spouse is deceased. I'm one of those people who believe the government is not responsible for supporting me so that my children can inherit my money. What worries me is having one spouse in a facility and one at home. The spouse at home will not be able to survive financially if they need to spend down all of the 401k assets.
Does Medicaid consider 401k monies joint assets for a married couple? If not, then I think we are OK. Most of our money is in IRA and 401k accounts belonging to me. I am 60. My husband is 77. Although you never know, it's more likely that he would require LTC first.
As others have said, consult an estate attorney or other knowledgeable professional with whom you can provide sufficient information to make a reasoned recommendation.
The one thing I would say specifically has also been mentioned but I'll make it direct -- "LTC insurance". At your age unless you have risk factors it's still quite a reasonable premium. Your husband may not be so easy altho my parents were both over 70 when they took out their policies initially so it's not necessarily impossible. With that policy in place, the combination of SS and its benefits paid the cost of her LTC almost completely thereby protecting her assets for her lifetime.
Pretty much - remember most qualified money (read that retirement money) has never been taxed (with the exception of Roth IRAs) and was deferred by the person in question. As long as it is held in a qualified account it will get certain protections (like from many creditors) and be subject to other risks (like Medicaid).
The phrase for the day is - WHAT THE BIG PRINT GIVETH, the small print taketh away. Frequently, one cannot solve one problem without creating another. That's why ADVANCE planning is so important. Its also why it can be costly - a good planner will look for all the cracks you could trip over and try to find ways to close them off.
You REALLY need to discuss this with a professional versed in elder law. How resources get calculated as either countable or noncountable assets is very complex as are the rules for spending down. E.g., a 401K may not be a countable asset in some cases. When you are married all the of the joint countable assets are totaled and the community spouse is then only allowed to keep $X.
Once again... please talk to an elder law professional.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.