IRAs can be considered exempt resources  

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Paul A. Brule

Legal Corner by Paul A. Brule

My firm helps many families save assets from risk of loss for payment of nursing home expenses. That is true even when the individual is just about to enter a nursing home or is already in a nursing home.

How we are able to do that depends on many different variables. Important among those are the kinds of assets that an individual may own. In this column, I will review how an individual retirement account (IRA) is treated under the Rhode Island Medicaid eligibility rules in relation to assistance for payment of nursing home expenses.

Keep in mind that those rules apply to individuals in Rhode Island. Even though Medicaid is a federal program, there are substantial differences that can be found between states. Most importantly, Rhode Island rules do not apply in Massachusetts.

In Rhode Island, an IRA is an exempt resource so long as it is paying out certain amounts to the owner. The account would be considered a non-countable asset when determining eligibility for Medicaid. In other words, what you have in your IRA will not count against you or be at risk of loss if you apply for Medicaid assistance for payment of nursing home expenses.

Some of our clients, especially those with large balances in their IRAs, are very pleasantly surprised to hear that. Unfortunately, as is often the case with good news, it does come with some bad news.

Generally speaking, under the tax rules, people in nursing homes are required to make annual minimum distributions from an IRA. For those individuals who are not subject to such requirements, perhaps because of their age or the type of IRA, in order to protect the balance of the account, distributions must be taken even if they are not required under the tax rules.

Once an individual is on Medicaid, those distributions are no longer part of the IRA and therefore no longer subject to those related protections. Fortunately, distributions are usually a very small percentage of the overall account and for certain married individuals, we may be still able to protect such distributions from loss for payment of nursing home expenses.

You can understand why we are concerned whenever we see a client who is withdrawing money out of an IRA unless the withdrawal is mandated under the tax rules or there are no other alternatives for the person to maintain his or her lifestyle. There are some exceptions to that general rule, and it is very important to consider and properly structure what will happen when the owner of the IRA passes away. Fortunately, it is also quite easy to save the IRA, even at that time.

You should not rely on this column or similar pieces for specific advice on your personal circumstances. Instead, if you have any questions or concerns, you should contact an experienced legal adviser for a confidential review.

Paul A. Brule is an attorney with the firm of Walsh, Brule & Nault, P.C., in Cumberland. He can be reached at (401) 334-4545.

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