Pretty strong image…Pretty big problem. I guess you get the idea and you know I am right.
By: Thom L. Cooper
Certified Elder Law Attorney
Part 1: Definition of theProblem: IRA vs Catastrophic Illness:
We all stick our heads in the sand. Who wants to think about this? No one… but we must. This is one of the biggest problems we are now facing in working with our clients in the area of elder law.
When I first started my elder law practice the wealth pattern of WWII vet era seniors was a home, savings, investments and a significant defined benefit pension every month from their employer and… no IRAs or qualified plans . This wealth pattern has now changed as we move to our current retirees. Now most of retirees still have a home, but instead of savings and a substantial pension, they now have a significant IRA with a minimal pension and modest investments and savings … especially when compared to the size of their IRAs and qualified plans.
This is a very significant change from a planning perspective. While homes and non IRA type investments can usually be placed in trusts to protect them from being ravaged by a catastrophic illness, the IRAs and qualified plans can not be placed in trusts without devastating tax consequences. In addition, as everyone knows, any time you take funds from a qualified plan you pay significant tax. Finally most seniors feel that there IRAs are their “fall back money” to keep them from grocery shopping in the cat food aisle.
We believe the solution is the protection of the IRA by leveraged collateral funds with associated protected trusts.
What in the world does that mean? I will begin to explain in our next blog “Part 2 The IRA Protector Trusts: A Solution for the Problem of IRA vs Catastrophic Illness”
A family recently visited our office to find out how to pay for home health care.
George and Sarah* have been married for 55 years. Sarah suffers severe rheumatoid arthritis that is so severe she must use a walker. To make matters worse, she recently fell and broke two ribs. George is doing his best to keep Sarah at home, but at age 79, Sarah’s care is beginning to take its toll on him. George is trying to find home health care aides to assist him with her care. He does not want to put Sarah, the love of his life, in a nursing home.
At wits end, George visited a local County Agency to inquire about benefits for Sarah. They informed George that although Sarah qualified for care medically, he had too much money to qualify. The county suggested that George spend down his retirement account to $20,000 and buy a new car to replace his 5-year-old car and he should qualify.
George asked what we could do to help. He told us that it would be very difficult to maintain his quality of life if he only had $20,000, and perhaps the thought of a new car would be appealing if he were sixteen years old, but his Buick only had 37,000 miles on it – he liked it just fine.
We began with a review of their assets using the same criteria the County used. They have a nice home, the 5-year-old Buick Century, a few CDs, and a large retirement account from George’s former employer.
In reviewing George’s dilemma, we determined that if we would create income, or a pension, with his retirement account – one he could not outlive – he would qualify for benefits and keep his Buick. We knew that if George turned his lump sum IRA into a guaranteed income stream, the State of Ohio would look at this as income, not as an asset; this income would be George’s and therefore not counted in determining Sarah’s eligibility for benefits.
We converted George’s IRA to income so that he could maintain his lifestyle while qualifying Sarah qualified for Home Health Care benefits the following month. We are happy to report that George is able to keep Sarah at home, right where they want her to be.
*(not their real names)
