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My spouse's parents are currently going through the process of transferring assets (home, tIRA, Roth IRA, taxable account) into an Irrevocable Medicaid Trust to avoid eventually losing it all to the nursing home/long term care. There is a family of history of longevity and this occurring with many of their relatives.
The painful thing about these trusts is that traditional and Roth IRAs can not be placed into them, but the IRA assets can be taken by the nursing home. As such, all IRA assets need to be withdrawn and transferred to the trust, in this case into a taxable account in the trust. For an IRA balance of almost 1M, this will incur some tax pain even if it is done as slowly as possible. There is also the 5 year Medicaid lookback rule to invalidate sheltering from Medicaid, so there is urgency to get it done.
My question is this:
At what point (ie what IRA asset level/total income level) do the excess taxes paid by more rapidly withdrawing from an IRA outweight the benefits of setting up the Irrevocable Medicaid Trust at all, even if there is a decent likelihood based on family history that long term care will be needed.
I understand that there is some state variability as to what constitutes income and Medicaid eligibility, particularly when it comes to IRA withdrawals, as well as some additional planning workarounds.
I should add that I am not a fan at all of long term care insurance, so please no alternatives that include LTCi.
Thanks in advance.
The painful thing about these trusts is that traditional and Roth IRAs can not be placed into them, but the IRA assets can be taken by the nursing home. As such, all IRA assets need to be withdrawn and transferred to the trust, in this case into a taxable account in the trust. For an IRA balance of almost 1M, this will incur some tax pain even if it is done as slowly as possible. There is also the 5 year Medicaid lookback rule to invalidate sheltering from Medicaid, so there is urgency to get it done.
My question is this:
At what point (ie what IRA asset level/total income level) do the excess taxes paid by more rapidly withdrawing from an IRA outweight the benefits of setting up the Irrevocable Medicaid Trust at all, even if there is a decent likelihood based on family history that long term care will be needed.
I understand that there is some state variability as to what constitutes income and Medicaid eligibility, particularly when it comes to IRA withdrawals, as well as some additional planning workarounds.
I should add that I am not a fan at all of long term care insurance, so please no alternatives that include LTCi.
Thanks in advance.
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