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IRAs and Medicaid Crisis Planning

Dealing with IRAs in Crisis Planning

Dealing with IRAs in Crisis Planning

Thank you to our guest blogger Dale M. Krause, J.D., LL.M., President and CEO of Krause Financial Services, for leading this conversation on dealing with IRAs in crisis planning.

One of the biggest questions my office receives is how to handle a large IRA when conducting crisis planning for either Medicaid or VA. When dealing with VA planning, IRAs are always considered countable assets. In Medicaid planning, the specific rules vary from state to state, but they are considered countable assets in most states. This causes a big problem for attorneys and their clients when trying to accelerate eligibility for Medicaid or VA, however there are ways to save your client’s IRA and still qualify them for benefits.

Don’t Liquidate the Account!

Liquidating an IRA can have some devastating effects on your client. First, the entire value is considered taxable income. This could mean tens of thousands of dollars of tax consequences for your client. Additionally, the amount of the IRA could elevate your client’s tax bracket, forcing them to pay an even higher amount in taxes. Beyond the typical tax consequences of liquidating an IRA, if your married client’s income for the year is above $44,000, up to 85% of their Social Security benefits become taxable. Additionally, their Medicare Part B and Part D premiums could increase.

Alternative Solutions

Using an immediate annuity is a great way to eliminate an IRA as a countable asset and accelerate eligibility for benefits. The annuity contains zero cash value and is considered income only to the owner. Transferring the funds to the annuity is a tax-free event. Rather, the IRA funds are taxed as the annuity payments are made within each calendar year. In short, any tax consequence associated with the IRA are spread out over the term of the annuity.

In VA planning, the annuity can be structured to ensure the claimant’s income does not exceed their UMEs. Both level-pay and balloon-style annuities are available, which means the claimant has maximum flexibility with this product. Additionally, the annuity can be converted to be “Medicaid compliant” at any time should it become necessary.

In Medicaid planning, the annuity is the perfect solution for a community spouse with a large IRA. There are no limitations on the income of the community spouse, therefore the income from the tax-qualified Medicaid Compliant Annuity will not affect the eligibility of the institutionalized spouse. If you have a case that involves an institutionalized spouse with a large IRA, consider using the “Name on the Check Rule”. Ownership of the account cannot be transferred, therefore “Name on the Check Rule” involves the institutionalized spouse purchasing a tax-qualified annuity and designating the community spouse as payee. For Medicaid purposes, this diverts the income directly to the community spouse and it does not become part of the institutionalized spouse’s Medicaid co-pay. (Note: Success of this strategy varies from state to state).

Three Ways to Learn More about IRAs in Crisis Planning

1. Visit Krause Financial Services’ website www.medicaidannuity.com or give them a call at (866) 605-7437 for more information on how to handle IRAs in Medicaid and VA planning. They offer a variety of educational materials for elder law attorneys, including webinars and state-specific resources. The 2018 Krause Report is also available and is a comprehensive guide to crisis planning.

2. Better yet, meet Dale Krause at Symposium 2018. He is presenting “Dealing with IRAs (and Other Tricky Assets) in Medicaid and VA Pension Planning” on July 31 at 4:00 p.m. (View Full Symposium Agenda)

3. Can’t wait? Watch the course “Strategies Using IRAs in Veteran Benefits & Medicaid Planning” Dale Krause recorded for ElderCounsel.

Read more related articles at:

Can an IRA Affect Medicaid Eligibility?

Fixing the Leak: Avoiding IRA Liquidation in Crisis Medicaid Planning

IRA Taxes: Rules to Know & Understand

Coronavirus Relief for Retirement Plans and IRAs

Also, read one of our previous Blogs at:

Must I Liquidate My IRA Before I Can Apply for Medicaid?

Click here to check out our On Demand Video about Estate Planning.



Medicaid Work Requirements

The Current State of Medicaid Work Requirements

The Current State of Medicaid Work Requirements

Former President Trump made it very clear during his presidency that he supported Medicaid work requirements. Indeed, the former Administrator for Centers for Medicare & Medicaid Services (CMS), Seema Verma, under Trump’s administration, issued policy memoranda on how states could submit Section 1115 waivers in search of work requirement approval.

Thereafter, several states submitted such waivers, including Arkansas, Arizona, Iowa, Indiana, New Hampshire, Kentucky, Kansas, Maine, North Carolina, Mississippi, Ohio, Utah, Oklahoma, and Wisconsin. Kentucky was the first to attempt to implement such work requirements. Under that waiver program, each Medicaid recipient would be required to work, look for work, or participate in volunteer work for 80 hours each month. If the requirement wasn’t met, Medicaid coverage would be lost for 6 months. There were several exceptions to the rule, such as for pregnant women, full-time students, primary caregivers to dependents, the elderly, and the disabled.

However, days before the new work requirements were to become effective, a federal judge blocked the new rule. Similar litigation ensued in other states. Kentucky re-drafted their waiver application, and it was once again approved. During the litigation process, however, a different governor was elected and Kentucky subsequently rescinded the waiver.

Arkansas was the first state to actually implement such work requirement policy. They had their program in place for about a year before a federal judge halted it. A study conducted on the year-length program found that the work requirements did not increase employment and those that lost Medicaid coverage had adverse consequences, such as resulting medical debt and delayed medical care.

So, what is the current state of Medicaid work requirements? The Supreme Court of the United States had granted certiorari in Cochran v. Gresham; arguments were to commence on March 29. However, earlier this month, the Court removed the case from their docket. The current-acting CMS Administrator, Elizabeth Richter, sent letters to various states indicating that CMS was beginning a process of determining whether to withdraw the Section 1115 waivers seeking Medicaid work requirements, as the agency no longer believes work requirements supports the overall objectives of the Medicaid program. Because no states currently have Medicaid work requirements and President Biden’s administration and CMS both do not support work requirements, the Supreme Court has considered the case moot. For now, work requirements are a non-issue and the Supreme Court has declined to move the case forward.

Read more related articles at:

  A Snapshot of State Proposals to Implement Medicaid Work Requirements Nationwide

Waivers with Benefit, Copay, and Healthy Behavior Provisions: Approved and Pending as of September 8, 2021


Also, read one of our previous Blogs at:


Click here to check out our On Demand Video about Estate Planning.


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