Can a nursing home make me spend down an IRA?

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Q. Can a nursing home make a person who is in the home liquidate money in an IRA and spend it down to pay for care before they can apply for Medicaid? Also, can a nursing home make the spouse who is not in a nursing home liquidate money in an IRA and spend it on care for the spouse? I have read that if the IRA is in payout status, the nursing home can’t require it be used to pay for care.
— Caregiver

A. A lot will depend on what state you’re in because Medicaid eligibility and spend-down rules will vary.

In New Jersey, the answer to both of your questions is yes.

There is no special protection for IRAs when it comes to Medicaid in New Jersey, said Nancy Heslin Reading, an estate planning attorney with Reading Law Firm in Newton.

“It isn’t the nursing home so much as Medicaid itself that requires the spend-down,” Reading said. “I suspect the nursing home is just repeating what they have been told.”

But, she said, when doing Medicaid planning, there are ways to preserve the spouse’s IRA up to a maximum of $126,420 for 2019.

“The nursing home likely does not know this, and Medicaid is not in the business of explaining to families how to shelter money,” she said.

Also, the nursing home resident’s IRA can in some instances be converted to a Medicaid annuity, Reading said, but again, the nursing home wouldn’t necessarily know that and Medicaid won’t advise you on how to preserve assets.

That’s where an estate planning attorney comes in, she said.

She said people say they can’t afford to hire an attorney to do Medicaid planning, but the fees are often a small fraction of the money that can be saved if the applicant owns substantial assets such as a house and retirement assets. Also, she said, if there is a spouse who is remaining in the community, much can be done to make sure she or he has at a minimum enough money to live on.

“Even in New Jersey, which is an impossibly difficult state in which to qualify for Medicaid, there is always the possibility that Medicaid planning will shelter quite a bit,” she said. “The attorneys’ fees are generally paid from one of the assets that must be spent down anyway to obtain Medicaid eligibility.”

So is Medicaid and tax planning with an attorney worth the expense? It depends on how much could be saved or sheltered, Reading said.

She offered this example. Say Medicaid planning will cost $10,000 but there is the opportunity to shelter $100,000 from long-term care expenses. The client nets $90,000.

“A $10,000 investment that returns $90,000 is a good investment by anyone’s measure,” she said.

You should reach out to an estate planning or elder care attorney who can look at the specifics of your finances to see if you can benefit from their services.

Email your questions to moc.p1571506253leHye1571506253noMJN1571506253@ksA1571506253.

This story was originally published on Sept. 18, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.