In most people’s experience the creation of an asset inventory is nothing more than creating a list of assets, account numbers and account balances as of a beginning date.
It is a good practice to maintain an asset inventory for yourself and update it periodically.
Some Issues that can Complicate Your Asset Inventory
When someone is ill, and we are looking to establish eligibility for Medicaid for long-term care in either a supportive living facility or a skilled nursing facility, asset inventory issues become complicated in some cases.
In ALL cases:
1. In cases involving individuals who are applying for Medicaid, their asset level must be down to $2,000 of assets as described above. Quite often the easiest way to get to those lower asset limits is to liquidate assets and convert to cash. However, in doing so, various issues arise that we will describe below.
2. First, please recall that any liquidation of any tax qualified retirement account such as a tax qualified annuity, 401(k), IRA etc. will trigger tax, except for a few exceptions.
3. In the payment of debts prior to the filing of the Medicaid application care, must be given regarding the order in which debts are paid. Sometimes certain creditors have priorities over other creditors.
4. In the liquidation of assets, sometimes there are penalties associated with liquidation , depending on the time that you liquidate. For example, annuities can have early withdrawal penalties and surrender charges.
5. Payment of outstanding debt such as credit card debt, mortgages and HELOC (home-equity) loans, may become an important part of your overall strategic spend-down plan when you’re seeking governmental benefits.
6. Long Term Care Insurance: This can and should be considered an asset and income source for certain governmental benefits, but make sure when and where the policy terms will make payment available.
7. Prior transfers or gifts and other uncompensated transfers of cash or property that were made before the date of filing a Medicaid application, to individuals or charities, in the past 5 years can be a liability when you look for Medicaid eligibility for long-term care.
8. Homes unless occupied by certain allowable individuals such as adult disabled children, spouses, or minor children, may need to be listed for sale when an individual seeks Medicaid eligibility. Business assets may also need to be listed for sale.
In SPOUSAL cases :
1. As stated above, any liquidation of any tax qualified retirement accounts such as a tax qualified annuity, 401(k), IRA etc. will trigger tax except for a few exceptions. In a spousal case, if we are going to apply for Medicaid for an ill spouse, then the ill spouse may have to liquidate or change the form of ownership of certain tax qualified assets such as IRAs and 401k.
Note: In order to accomplish this, it is sometimes necessary to open a limited guardianship proceeding in court. However, with IRA’s and other tax qualified retirement accounts we do not want to trigger the payment of taxes sooner than is necessary since the ill spouse may still be residing either at home or in a facility that does not take Medicaid or where no Medicaid eligibility is possible. Thus, why pay tax to the IRS earlier than you need to? Eventually however you may begin the process of transferring the IRA from the ill spouse to the healthy spouse with the assistance of the guardianship court and suffer the triggering of the tax (for example say, 20%) in order to save the bulk of the IRA account for the healthy spouse who is likely still living in the community.
Remember also that because many IRAs are structured as an “IRA annuity” by your financial adviser, there may be penalties and surrender charges on the transferring of such IRA annuity or the cashing out of such an IRA annuity
2. Illinois Medicaid regulations provide that if the community spouse can remain living in the family home, then the community spouse is entitled to retain $109,560 of the couple’s nonexempt assets in addition to the family home, an automobile, personal and household effects, and Medicaid compliant prepaid burial arrangements. Because of these asset limitations, which can be exceeded with careful planning that is authorized under the Medicaid regulations, it is crucial that you be thoughtful in transferring assets from one spouse to the other and be careful about the timing of such transfers.
As we indicated at the outset, the task of preparing an asset inventory should not in and of itself be that complicated. The difficulties come in when one seeks to re-position or transfer certain assets that are found in your inventory. Many assets have contractual constraints, deferred tax implications built into them, or problems with access before the assets can be freely used for the benefit of you and your loved one.
Be complete and seek guidance if you must to deal with any complicated assets in your asset inventory while you are on the eldercare or long- term care journey.