Public Benefits 101: Retirement Accounts

When it comes to qualifying for Medicaid, few things are simple or straightforward. Every state has its own way of managing this important public benefit program. The way Medicaid evaluates retirement accounts during the qualification process is no exception.

How are retirement accounts handled in Medicaid applications in California? We posed this question to Julianna Malis, attorney and owner of Anacapa Estate Planning & Elder Law, a Life Care Planning Law Firm in Santa Barbara. Julianna has an advanced law degree in taxation with emphasis in estate planning. She founded her law firm to help clients navigate the difficult road of the Life Care Continuum after caregiving for her own mother.

First, a quick review of the basics in California, where the Medicaid program is called Medi-Cal. When it comes to eligibility for Medi-Cal, certain resources are considered “countable” in the application process and others are not. For a single person to be eligible for Medi-Cal, he or she is limited to $2,000 in assets. A married couple is limited to $126,420 in assets. “Only non-exempt resources are counted in the spouses’ combined countable resources at the time of application for Medi-Cal,” says Julianna. “Assets such as the principal residence, one car,  prepaid burial trusts, and term life insurance are excluded in California, regardless of their value.”

Retirement accounts, such as work-related pensions and IRAs, do not have to be liquidated in order to qualify for Medi-Cal. Under California law, the cash surrender value or the balance of pensions and IRAs regardless of their value are considered unavailable if the applicant or beneficiary is receiving periodic payments of interest and principal. However, any income from the pension or IRA is counted toward your share of cost for Medi-Cal purposes. “That means it will go to the skilled nursing facility,” Julianna notes.

Non-work-related annuities, typically purchased for retirement income purposes, are another matter. If non-work-related annuities were purchased before August 11, 1993, Medi-Cal treats them like work-related pensions and IRAs. However, in 1996, the law changed and the expected return on the annuity must be equal to the life expectancy of a beneficiary.

All other retirement accounts such as those kept in in a brokerage savings or money market account are counted against you. These countable assets could push the applicant over the resource limit, making them ineligible for Medi-Cal benefits.

However, you cannot just give away your countable retirement assets to become eligible for Medi-Cal. In California, there is a 30-month “look-back” period which is used to determine if an Medi-Cal applicant made an improper transfer or gift.  An “improper” transfer or gift will result in a period of ineligibility depending upon the value of the asset.

“Some of the countable assets are candidates for spend-down on allowable expenses such as paying off a mortgage, making repairs to one’s home or replacing an older vehicle,” advises Julianna. Other legal strategies to qualify for Medi-Cal benefits may include stacked gifting, or transfers to  a Medi-Cal Asset Protection Trust, called Qualified Income Trusts in other states. A married couple may obtain a court order  to allow the at-home spouse to retain assets over the asset limit and increase monthly income through a spousal support order.

Medicaid Planning is not a do-it-yourself proposition and applicants should proceed with caution. Your best bet is to work with an experienced elder law attorney in your state. You’ll be glad you did!