Posts By: Gene Osofsky

Q:  I have a Living Trust, prepared some time ago. I recently heard that it was a good idea to also have a Will. However, I thought the trust took the place of a will. Can you clarify this?

A.  Sure. Attorneys who prepare trusts generally also prepare a backup will to coordinate with the trust. The companion will is designed to “catch” assets that were inadvertently left out of the trust. The will then typically directs that these omitted assets be “poured back” into the trust and be distributed according to the terms of the trust.  Attorneys often refer to these wills as “Pour Over” Wills, which accurately describes their purpose. Ideally, you would never need to use the “Pour Over” Will, because all assets would be part of your trust.

However, in the real world, we find that clients often neglect to take proper steps to retitle assets into their trust.  Remember, in order to transfer assets into your trust, you generally have to sign a formal document, such as a deed in the case of real property, which formally re-titles assets into the name of the trustee of the trust. By the way, in most cases the trustee is the same person who created the trust (the trustor), but the trustor still must observe the formality of retaking title in his own name “as trustee”.

The assets omitted from the trust and “captured” by the Pour-Over Will still have to go through probate. However, the advantage of having a Pour-Over Will is that the omitted assets will ultimately go to your designated trust beneficiaries as part of a coordinated plan. Without the Pour-Over Will, the omitted assets would be distributed to your heirs-at-law as identified by statute, which could be different persons.

A related problem arises where a trustor has clearly identified assets on a schedule attached to his trust, but neglects to formally re-title the assets into his name “as trustee”.  This happens fairly frequently. Here, the law provides a quicker remedy, which attorneys often refer to as a “Heggstad Petition”, so named because of the 1993 court decision which approved this remedy.  In these situations, where the trustor’s intent to include an asset in his trust is clear, it is possible to petition the court for an order immediately transferring the assets into the trust, so that they are not subject to probate and the possibility that they may go to unintended individuals.

For the above reasons, we always recommend that a trust contain a detailed Schedule of Assets, that upon creation of the trust the client take immediate steps to retitle those assets into the trust, and that the trust be accompanied by a companion “Pour-Over Will”. Caution: some assets, such as retirement accounts, should never be re-titled into the name of the trust, as that could trigger an adverse tax result.

References: Ukestad v. RBS Asset Finance Inc. (03/16/2015); (Estate of Heggstad (1993) 16 Cal.App.4th 943, 947–950, 20 Cal.Rptr.2d 433 (Heggstad ); California Probate Code § 850

Posts By: Gene Osofsky

Q.  I hear that there is a new reverse mortgage rule that protects younger surviving spouses from being forced out of their home when the older spouse dies. Do you know anything about this?

A.  Yes, a new HUD reverse mortgage rule went into effect on August 04, 2014, and seeks to protect certain surviving spouses from being forced out of their homes upon the death of their spouse.

Some background is helpful: As you may know, a homeowner has to be age 62 or older in order to qualify for a reverse mortgage loan under the popular Home-Equity Conversion Program (HECM). In the past, when one spouse was over age 62 and the other was under age 62, the couple could not qualify for a reverse mortgage loan unless the younger spouse was left entirely off the loan.  Many couples left younger spouses off the loan in order to qualify, or sometimes to secure a larger loan amount, often not realizing the future implications of this strategy.

Here is what then often happened: When the borrower spouse died, the reverse mortgage lender would require that the loan be repaid and, if the surviving spouse could not do so, would foreclose. This often resulted in a forced sale and the eviction of the younger surviving spouse.

To stop this practice, AARP brought a class-action lawsuit against HUD in a case called Bennett v. Donovan.  Last year the court ruled that this practice violated federal law and directed HUD to modify its regulations to stop this practice. HUD did so, and the new rule is the result.

The new rule permits a couple, where one spouse is under age 62, to take a reverse mortgage and list the under-age spouse as a “Non-Borrowing Spouse” (NBS). When the older spouse dies, the surviving NBS then retains the legal right to remain in the home, providing that certain requirements are met. One of them is that the NBS must, within 90 days of the older borrower’s death, establish a legal right to remain in the home, such as by establishing legal ownership, an executed lease, court order, or other legal entitlement. Upon the younger NBS doing so, she retains the legal right to remain in the home, providing that other loan requirements continue to be met, such as the payment of insurance premiums and property taxes.

The new rule does have some “down-sides”: (1) the reverse mortgage loan amount will now be less, as it will be based  upon the younger spouse’s age; (2) upon the death of the borrower spouse, the surviving NBS will not be able to make any further draws against the unused loan balance; and (3) the new rule protects only NBS’s who were married to the borrowing spouse at the time of loan origination; the new rule does not protect new spouses of a later marriage.

Further, the new HUD rule is not retroactive and does not protect NBS’s on existing reverse mortgage loans.  However, surviving NBS’s on older loans might still attempt to seek protection under the umbrella of the court’s ruling in the Bennett v. Donovan case.

In view of the new rule, senior couples who had previously decided against a reverse mortgage because of the risk of foreclosure to the younger surviving spouse, might now wish to reconsider where such a loan otherwise makes sense for them.

Posts By: Gene Osofsky

Q.  My husband has dementia and I wonder about my ability to refinance or even sell the home, as he cannot sign. The home is held in a Living Trust.  Can you advise?

A.  The short answer is that it may be easier for you to sell the home than it would be to refinance. Here’s why:

Sale of Home: Your Living Trust probably provides that both of you are co-trustees, but that when one of you dies or becomes incapacitated the other becomes the sole trustee with full power to convey trust assets.  So, assuming that you can document your husband’s incapacity as required by the terms of the trust, the trust terms would then typically permit you, as sole trustee,  to convey clear title to the buyers on your signature alone. That authority would then usually allow you to sell the home.

Refinance: However, if your goal were to refinance an existing loan on your home, this could be problematic. Many lenders require that the home be removed from trust during the loan escrow and require that all loan documents be signed by both homeowners as individuals, rather than as trustees. Once removed from trust, your authority to sign would no longer be governed by the trust instrument.  Instead, it would be governed by a Durable Power of Attorney (“DPOA”) if one exists.  However, your lender may not accept that DPOA, if, for example, it had been signed long ago, it does not adequately identify your home, or it does not clearly give you authority to encumber the home to secure the loan.  Also, the lender may require that you obtain physicians’ letters certifying both (a) that your husband had full capacity when the DPOA was originally signed years ago, and (b) that he currently is incapacitated.  A letter certifying your husband’s capacity years ago could be a problem if, for example, your husband’s then physician is now unavailable.

Even lenders who do not require that the home be first removed from trust, may still require signatures by both the acting trustee and by both homeowners as individuals.  This appears especially true with regard to Reverse Mortgages. So, again, even in this situation you may need a DPOA that is acceptable to the lender.

Possible Work-a-rounds: Suggestions if you wish to refinance and encounter lender resistance: (A) shop around: some lenders, such as credit unions, may have more relaxed standards.  For example, some may not require that you remove the home from trust in order to refinance and may accept your signature, alone, on all loan documents as sole trustee; and/or (B) consider a Petition to the Superior Court asking the judge to issue an order which substitutes for your husband’s signature. This procedure is available in California under what is called a Petition for Substituted Judgment, so named because it asks the court to substitute its judgment for that of your husband. Presumably, a lender would accept the resulting court order in lieu of your husband’s signature.

Whether you seek to sell or refinance, I recommend checking out these issues with one or more title companies and/or lenders early on and before you get too committed to a specific course of action.

Posts By: Gene Osofsky

Q.  Mom recently moved in with us so we can help care for her. When we notified Social Security of this, they asked if I wished to become mom’s representative payee.  Is that something I should do? 

A.  It all depends.  In the Social Security system, a representative payee is appointed to receive funds for someone, such as your mom, who is unable to manage her own money or pay her own bills. If you become her representative payee, you would have the power and the responsibility to manage that money for her benefit. If you assume that responsibility, you will essentially be a fiduciary with four very important duties:

(1) You must act only in your mother’s best interest. You cannot pay yourself for managing her money, and you cannot borrow it or lend it to anyone else;

(2) You must manage her monthly benefit carefully, making sure that her daily needs are met, bills are paid on time and all taxes, if any, are paid when due;

(3) You must keep her money separate from your own, which means that you must keep it in a separate account which clearly identifies your mother as the owner of the funds and you as her representative payee:   Example: if your mother’s name is Mary Jones and you are John Jones, the account should be set up to read like this: “Mary Jones, by John Jones, Representative Payee”;

(4) You must keep good records of everything you do with her money, keep all receipts and – very important — make an annual report to Social Security showing how you spent or conserved her money. You must also keep Social Security informed about your mother, notifying it of any change in circumstances which might change her benefit amount.

I find that the biggest drawback to serving as a representative payee for a loved one is the requirement that you must keep careful records and submit an annual written account to Social Security showing how you handled the beneficiary’s money. This annual requirement often comes as a big surprise at the end of the year and many are unprepared to complete that report. Further, if Social Security feels that you have mishandled the beneficiary’s funds, you might be obliged to make restitution with your own money.

I generally recommend an easier approach: if you can, arrange for your mother’s social security benefit to be electronically deposited into her checking account on which you have signing rights as her agent. Then, just pay her bills from that account using your authority as her agent. This informal arrangement eliminates the need for an annual accounting to Social Security and the corresponding scrutiny. Assuming that you will be just as diligent in handling her funds in this manner as you would be if you were required to submit an annual report to Social Security, your job will be less burdensome and you mother will be served just as well.

Posts By: Gene Osofsky

Q.  My wife and I have a lot of credit card debt and we are having difficulty keeping it current. Most of  our savings is in my IRA. Are these funds protected from our creditors? 

A.  In California, Traditional IRA accounts enjoy only limited protection under state law, but expanded protection under federal bankruptcy law. Here is the way it works: 

Traditional IRA:  State law extends limited protection to funds held in Traditional IRA accounts, including ROTH IRA’s. This protection is based upon the extent that you can demonstrate to a judge that you need the funds to provide support for yourself and your dependents. If you were sued by a creditor, the matter would end up in court and a judge would decide the extent of any protection, typically based upon the following criteria:   (1) do you need the IRA funds for support and, if so, how much?, and (2) will you be able to replenish those retirement funds if they are awarded to the creditor.  Thus, if you rely upon the IRA for support, and if you are retired and not able to return to employment to earn back the funds, a judge might be inclined to allocate more of the IRA pie to you than to your judgment creditor. However, the extent of protection would be up to a judge, and so there is no assurance as to how much would be protected in the event of a lawsuit.

By contrast, if you filed bankruptcy, then you would have much broader protections under federal law. In bankruptcy, you would have an automatic exemption of $1 million, an exemption which is adjusted periodically for inflation ($1,245,475 as of 2013). This exemption would be enough for most people, and so bankruptcy would be your fallback position in the event you needed maximum protection. Also, knowing that you have this option might increase your negotiating leverage with an unpaid creditor.

Inherited IRA’s:  However, this automatic bankruptcy exemption would not apply in the event your IRA were an Inherited IRA, for example if you inherited the IRA funds from your parent by reason of your parent’s death.  The US Supreme Court ruled on this point just last month in a case called Clark vs. Remeker, finding that inherited IRAs are not “retirement accounts” as they no longer serve the purpose of funding the original owner’s retirement.  However, there still may be discretionary protection under state law based upon the “necessary for support” standard.

Rollover IRA’s: Upon retirement, many employees roll over funds from their employer-sponsored Profit-Sharing or 401(k) plan into a Rollover IRA.  If these funds came from an employer sponsored plan managed in compliance with the Employee Retirement Income Security Act (an “ERISA” Plan), then the funds in your rollover IRA would enjoy unlimited protection, providing that you could trace the source of funds back to your employer’s ERISA plan. For this reason, I advise clients who are contemplating rollovers from employer ERISA plans to roll over these funds into a separate Rollover IRA, and not to mix them with their own Traditional IRA. This strategy extends unlimited protection to the funds in the rollover IRA, no matter the amount.

Spousal Rollovers: In view of the recent US Supreme Court decision, if there were creditor concerns I would advise the surviving spouse of a deceased IRA owner to roll over the decedent’s IRA into the survivor’s own IRA, rather than to treat the decedent’s IRA as an Inherited IRA. Whether doing so  would extend protection to the rollover amount is presently uncertain, but until this matter is clarified doing so would be the wiser approach.

Special Trusts for IRA’s:  If the original IRA owner is concerned about a beneficiary’s creditor issues, the owner might consider creating a special “IRA Trust” to be the beneficiary of IRA proceeds upon the owner’s death. A properly drafted “IRA Trust” may protect inherited proceeds from a beneficiary’s creditors even in light of the Supreme Court decision.  This trust requires special planning and is not the typical “Living Trust”.

Caution:  This is a complicated area of law. Persons contemplating a bankruptcy petition, or who wish to consider a special “IRA Trust”, and who have significant funds in a retirement account, should consult with an attorney as part of their planning.

Posts By: Gene Osofsky

Q.  Our grandson is graduating college and we would like to get him a gift which recognizes the beginning of his adult life and career.  We thought of something of a “legal” nature and wondered if you have any ideas? 

A.  Great thought and indeed I do.  Why not arrange through your attorney to provide him a basic estate planning package, which would include an Advance Health Care Directive, a Durable Power Of Attorney and a Simple Will.  The message, of course, is that he has now formally entered the world of adulthood and needs to take prudent steps to protect himself and his loved ones from the unexpected.  He would also learn that these essential “life planning documents” need to be kept up-to-date as circumstances change, e.g. when he marries, has a child, purchases a home or acquires wealth.

Understandably, his focus will most likely be upon other things, such as deciding where he will live, beginning a new career, and perhaps finding a life partner.  But your thoughtfulness can also teach him that these new adventures come with a certain responsibility.  What if, for example, he were in an accident or suffered serious illness and became unable to manage his own affairs or direct his medical treatment.  This happens!

In our own family, while our son was away at college, he suddenly had to undergo emergency surgery.  I can assure you it was quite unsettling to have to scurry around to prepare and arrange the remote signing of an Advance Health Care Directive while, at the same time, make emergency travel plans to be with him.  Fortunately, everything turned out fine, but one never knows.

While his own parents may feel that, should anything happen, they can always make decisions for him, they may be surprised to learn that the law does not agree.  Once your grandson turned 18, he became an adult in the eyes of the law, and his parents no longer had the legal right to make decisions for him or direct his medical care.  Instead, if suitable legal documents were not in place, they could only acquire that legal authority through a court ordered conservatorship, a public, cumbersome, time-consuming and expensive legal proceeding.

Your grandson need not worry that his parents would take over management of his life.  The Advance Health Care Directive and the Durable Power Of Attorney can be “springing powers”.  This means they would only spring to life and become operational when and if he became incapacitated and could not make those decisions for himself.  Also, he need not feel obliged to name his parents as his agents.  Instead, he could name whomever he wishes.  For example, he might prefer to nominate his siblings, or even a very good friend, to serve as his agent or successor agent.

One of the other benefits of this gift would be his introduction to a professional with whom he might build a relationship, and who might be able to assist him over the years as he matures.  You might also consider introducing him to your banker or stockbroker, help him establish a contributory IRA and discover the wonders of tax-deferred growth and compound interest.  Indeed, you might be able to show him how– with regular contributions– he could be a millionaire by the time he is your age.

 

 

 

Posts By: Gene Osofsky

Q.  Following my husband’s return home from a hospital stay, Medicare paid for a home health agency to give him therapy at home.  However, we were just told that Medicare would stop paying for these visits because his condition was not improving.  Does that sound right?

A.  No, it does not.  Some background may be helpful: for many years, home health agencies and nursing homes who contract with Medicare routinely terminated Medicare coverage for a beneficiary who had stopped improving, even though nothing in the Medicare law required improvement as a condition for continued coverage.  In practice, both Medicare and the contract providers wrongfully applied an “improvement standard” to deny continued coverage to patients who had “failed to improve” or who had “plateaued”.  In short, once beneficiaries failed to show progress continued coverage was denied.  However, this misapplication of Medicare law was successfully challenged in a class-action lawsuit entitled Jimmo v. Sebelius, which was settled last year with nationwide impact. 

Under the settlement agreement, Medicare agreed to abandon its use of the so-called “improvement standard”.  It also agreed to revise its Medicare Benefit Policy Manual and to issue written instructions to its healthcare providers to make clear that continued  coverage of skilled nursing and therapy services does not turn on the presence of a beneficiary’s potential for improvement, but rather on whether he or she needs skilled care to “maintain” his or her current condition or to “slow further deterioration”.  Under the new policy, if your husband would be at risk for losing function or “backsliding”, then continued therapy ought to be provided and covered by Medicare.

Unfortunately, even though the Jimmo settlement is more than a year old,  we find that many healthcare providers are unaware of the end of the old “improvement standard”.  As a result, many seniors still experience premature Medicare coverage terminations because they are not improving.  This is especially problematic for person suffering with chronic conditions such as multiple sclerosis, Alzheimer’s disease, Parkinson’s disease, ALS, heart disease and stroke.  The good news, however, is that advocacy on your part can play a big role in correcting premature coverage terminations.

If you receive a notice that Medicare coverage is about to terminate, consider an immediate appeal.  Talk to your husband’s doctor and ask for a written chart note that continued therapy is necessary for your husband to “maintain” function and/or to “slow further deterioration”.  To further aid you in your appeal, download the excellent Self-help Packets available for free on the website of the Center for Medicare Advocacy at www.MedicareAdvocacy.org, or by calling 860-456-7790.  Individualized Self-Help Packets are available for denials of outpatient therapy, home healthcare, nursing home, and the misuse of hospital “observation status”.

So, based upon the Jimmo class action and the end of the so-called “improvement standard”, your husband may be entitled to continued covered therapy.  Remember that advocacy does work. Also, by educating your husband’s providers as to the new rule under the Jimmo settlement, you may also indirectly help other patients who might have been similarly misinformed and could themselves benefit from continued covered therapies.

Posts By: Gene Osofsky

Q. My husband is in poor health and we need to find a way to pay for care to keep him at home. He has a life insurance policy payable on death, but I heard that there may be ways to access  policy benefits during lifetime. Can you advise on this?

A. Sure. There are ways that a life insurance policy, which is ordinarily payable only upon death, might generate funds during life:

1) Take a Loan Against Cash Value: if your policy is a whole life policy, or otherwise has cash value, you should be able to borrow money against it and still maintain the policy in force. Ultimately, the outstanding loan amount will be subtracted from the later death benefit payment, but borrowing can be convenient way to raise needed funds now for any purpose;

2) Accelerated Death Benefit (“ADB”): many life insurance policies, even some term policies, will allow the insured to access a portion of policy benefits during life if he or she is terminally ill, has a life-threatening illness, needs extended long-term care services and/or is permanently confined to a nursing home. Usually the ADB benefit depends upon the insured having purchased a “rider” with that benefit at the time of policy purchase, but some carriers will offer that benefit even if the policy does not expressly so provide. Others will allow the purchase of an ADB rider even after the policy is in force;

3) Life Settlement: this option allows you to sell your life insurance policy to investors, usually at a steep discount against the policy death benefit. The investors then become the owners of the policy, continue to pay the premiums, and ultimately receive the policy death benefit at the time of your demise. This option is usually only available to policy owners over 65 years of age and  requires disclosing 5 years of medical records for review. This may be an especially good option if you are considering canceling the policy because the premium payments have become a financial burden or you no longer need it.  According to Brian May of Summit Life Equity, a company that arranges life settlements, it is best to use a firm that employs a competitive bidding process among investors to maximize the sale value of your policy.

4) Viatical Settlement: a viatical settlement is similar to a Life Settlement, but is only available  to insured’s who are terminally ill and have a life expectancy of less than two years. Like the Life Settlement, the viatical settlement pays the insured a percentage of the policy death benefit now, while taking over policy ownership and assuming responsibility for making future premium payments.  The viatical company then receives the policy death benefit upon the insured’s demise.

Accessing policy death benefits during lifetime must be carefully considered, especially if it involves a sale of the policy using the Life Settlement and/or Viatical Settlement approach.  Opting to sell your policy means that the policy death benefits will not be available to your family down the road. Also, converting your policy to cash may adversely affect eligibility for public benefits, such as Medi-Cal, and — at least with the Life Settlement approach — some of the proceeds may be taxable. It is best to seek advice from your insurance and financial advisors, or your attorney, before making the decision to sell your policy for immediate cash.

Posts By: Gene Osofsky

Q. My parents are in their 80’s and could use some financial help to remain in their home. Fortunately, I am in a position to help, but my parents are reluctant to accept gifts. I heard something about a family loan that works like a reverse mortgage. Do you know anything about this?

A.  Yes. It works much like a reverse mortgage from the bank, but can have features that make it a better deal for seniors.

The basic concept of a reverse mortgage is that the lender makes payments to the homeowner as a lump sum, line of credit or stream of monthly payments.  All re-payments of interest and principal are deferred until the homeowner moves out or passes away, at which time the loan is due.

Problem: if a senior moves out of his home into a nursing home to get care, the bank will call the loan due, which may result in a forced sale of the home.  This forced sale could suddenly turn exempt home equity into cash proceeds, potentially making it more difficult for the senior to qualify for a Medi-Cal subsidy. By making qualification for a subsidy more difficult, the forced sale could compel the senior to deplete his own estate by the cost of care.

By contrast, the Private Reverse Mortgage (“PRM”), where the lenders are family members, may better meet the needs of older homeowners.  It works like this: The children loan money to their parents, secured by a deed of trust on the parents’ home. The parents open a new bank account  which the children fund periodically as needed, rather than by way of a lump sum. The parents access that account by writing a check. Just like a bank reverse mortgage, all payments on the loan are deferred until the parents die or the home is sold. However, unlike the bank, the children would not force a sale of the home during their parents’ lifetimes.

Here are some other advantages:

It’s cheaper: the up-front costs of paying an attorney to set up a private reverse mortgage are typically much less than the up-front costs of a bank reverse mortgage; interest rates charged can be lower; and children can lend up to 100% of the home’s value, providing more money for their parents.

The PRM also has advantages for Medi-Cal long-term care planning:

(1) If the senior moves out of the home into a nursing facility, he can still keep the house; a forced sale is avoided and the senior continues to own the home as an exempt asset;

(2) The PRM can help protect the equity in the home for the family: as a secured loan it would take precedence over any claim by Medi-Cal for “payback” following the demise of the senior homeowner;

(3) The PRM can also protect the home equity by permitting a transfer to family members during the senior’s lifetime in order to avoid Medi-Cal “payback” on death, something that would not be permitted by a conventional reverse mortgage lender.

The family of any senior who owns a home, but who has little in savings, should consider the PRM as a way to help parents enjoy the retirement they deserve. Of course, the feasibility of this arrangement assumes that the senior’s family has sufficient means to periodically fund the parents’ drawing account.

Caution:  Depending upon how the note and transaction documents are drawn up, there is the risk that the family “lender(s)” may need to recognize and pay income tax on the accrual of interest each year, even though payment of both principal and interest is not expected until the loan is paid in full, which typically would be when the home is someday sold. This deferred interest is sometimes referred to as “phantom income”, as it has not been actually received.  BUT…..that said, there is IRS authority that if interest is “added monthly to the outstanding loan balance as it accrues“, then the accrued interest is “neither includible in a cash method lender’s gross income nor deductible by a cash method borrower at the time it is added”. IRS Revenue Ruling, Rev. Rul. 80-248 (January 1, 1980).  This older Revenue Ruling still appears to be valid and is in accord with more recent publications from the IRS affirming the deductability to the borrower of deferred reverse mortgage interest in the year of actual payment, as per IRS Publications 554 and 936.  Thus, special care should be observed in drawing up the transaction documents so as to optimize the chance of deferred interest treatment for both lender and borrower under the IRS Revenue Ruling cited above.

Note, further:  there does not appear to be firm IRS authority regarding the treatment of  ‘interest on interest’ when the interest on the outstanding loan principal is thus deferred, added to the loan balance and, itself, accrues interest. Nonetheless, absent a definitive pronouncement from the IRS, most practitioners would treat the “interest on interest” the same way as they treat the underlying deferred interest.

Appreciation to ElderLawAnswers.com for the inspiration for this article and for permission to use portions of its article on the same topic. For more on this topic, see the following article published by CANHR on its website, “CANHR’s Guide to Reverse Mortgage Alternatives Is an Inter-Family Loan Right for You? “

 

 

Posts By: Gene Osofsky

Q. My wife may soon need nursing care and I will need to apply for a Medi-Cal subsidy to help with the cost.  Our incomes are modest and, aside from our home, most of our savings is in the form of our IRA’s.  A friend thought I would have to cash them out and “spend down” the proceeds before my wife would be eligible.  Does that sound right to you?

A.  Not at all.  I am sure your friend means well, but he or she is misinformed.  Funds held inside an Individual Retirement Account (“IRA”) are not counted in determining whether your nonexempt assets are above the Medi-Cal resource ceilings, provided that certain requirements are met.  Here is how Medi-Cal views IRA’s: 

IRA In Your Wife’s Name: As the spouse needing nursing care, the IRA in your wife’s name will not be counted in determining whether your assets exceed the Medi-Cal resource ceilings, provided that she is receiving periodic distributions of  “income and principal”.  Usually this requirement is satisfied by drawing out the Minimum Required Distributions (“MRD”) under IRS rules.  So long as she takes the MRD’s, whether as monthly, quarterly or annual draws, Medi-Cal will treat her entire IRA as “unavailable” and will not count its value when determining her eligibility.  Medi-Cal will, however, treat the MRD distributions as income, which may then go toward her “co-pay” (which Medi-Cal calls ‘Share of Cost’).

IRA in Your Own Name: As the At-Home spouse, the IRA in your own name does not count at all, regardless of whether you are receiving any distributions.  In essence, the Medi-Cal rules encourage you to conserve your retirement nest egg and use it for its intended purpose.

We generally suggest that a person in your wife’s situation take out the bare minimum from her IRA as necessary to comply with both Medi-Cal rules and IRS rules.  This strategy keeps her Share of Cost low and still allows her to qualify for a Medi-Cal subsidy to cover the remaining cost of care.

Also know that your IRA’s – whether in her name or in your name – can be worth any amount and still be non-countable.  There is no upward ceiling on value.  In the eyes of Medi-Cal, the only difference between her IRA and yours is that she must be receiving MRD’s in order to render hers non-countable.  And, by the way, Medi-Cal applies the same rules to other retirement accounts, such as 401(k)’s, 403(b)’s, Roth IRAs, and the like.  So, in your case, provided that your other savings and nonexempt assets do not exceed the Medi-Cal resource ceilings (currently, $117,240 for the At-Home spouse and $2,000 for the ill spouse), your wife should qualify for a Medi-Cal nursing home subsidy.

Caution:  We find that couples in your situation are sometimes told that they need to convert the money in their IRA’s into an annuity in order to render the proceeds exempt for Medi-Cal purposes.  That is not the case, and such conversion is almost always both unnecessary and inadvisable.

In short, the way Medi-Cal treats IRA’s and other retirement accounts is designed to help individuals and couples manage the high cost of nursing care without unduly draining their retirement nest eggs.