How to protect your IRA from the 5-year look-back for Medicaid

At a recent elder care-trust seminar conducted by a law firm, we heard that individual retirement accounts can be transferred to a trust to protect them from Medicaid and from the five-year lookback for nursing home care assistance. But my IRA custodian, a mutual fund company, says it can only list me — not a trust — as owner of my IRA. Who’s right?

Either that seminar gave bad information or you misremember what you heard.

The basics: Medicaid, the only government program that pays for long-term care, is only available to the poor. People can plan to qualify for Medicaid by transferring assets to their children or to a trust for their children’s benefit. However, assets you give away in the five years before entering a nursing home delay your Medicaid eligibility. That’s the five-year look-back period.

Clear so far? Then let’s correct the misinformation.

A trust can’t own an IRA. Any money you moved from your IRA to a trust would be a taxable distribution, says Ed Slott, a Rockville Centre tax accountant.

Assets transferred to a Medicaid trust don’t escape the five-year look-back. On the contrary, says Esther Schwartz Zelmanovitz, a Great Neck elder law attorney, “This is exactly the type of transfer that is subject to the look-back.”

An IRA is protected if its owner is taking required minimum distributions, called RMDs. The RMDs are deemed income available for nursing home care, but the IRA principal is exempt from Medicaid eligibility calculations. “If you were allowed to transfer an IRA to a trust, you’d be turning an exempt asset into an asset subject to the look-back,” Zelmanovitz says.

An IRA with designated beneficiaries is exempt from Medicaid claims after its owner’s death.

THE BOTTOM LINE

Don’t make major financial or legal decisions without getting one-on-one professional advice.

MORE INFORMATION

nwsdy.li/AboutMedicaid

• nwsdy.li/NYrulesMedicaid