How Florida Medicaid Treats Retirement Accounts: Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen
All right, let’s go to attorney John Frazier. Good morning, John.
Hey Joe, how are you doing today?
Good. John is with our law firm. He does all the VA and Medicaid planning cases, and calls in every other week with a tip of the week. John, what are we talking about today?
Today, I am going to talk about how Florida Medicaid treats retirement accounts like IRAs and 401Ks.
There are a number of different retirement accounts out there. I think IRA is probably the most common. The next most common is called a 401K. These numbers refer to provisions in the Internal Revenue Code. A 401K as an employer-sponsored retirement type of an account.
Another retirement account that I see in my practice is called a 403B plan. This is a retirement account for employees of public schools and tax-exempt organizations. Another plan that I see is called a 457 plan. This is for state and local government employees and some nonprofit employers. Then another plan is called a thrift savings plan. That is for federal government employees. That one is very similar to a 401K type of plan.
The general rule under Florida law is that if you have an existing IRA or one of these other retirement accounts … Most people know that there is a $2,000 asset limit. Let’s say that you have an individual with a $100,000 IRA. The question is, “Well, how do we deal with that under the Florida Medicaid rules?”
The State of Florida says that if you set up a regular systematic payment of all income plus some principal, then the State of Florida will treat that as an exempt asset for the Medicaid rules. I think this is very generous. I don’t know if this is even possible in other states. So we’re very lucky that we can do this.
Let’s say that you’re in the month of January, and that that retirement account would generate $1,200 in income plus some principal. You would take the $1,200 divide it by 12 for the number of months in the year, and your minimum monthly payment would be $100 per month. The State of Florida would then treat that IRA as exempt. That’s a basic overview of what we can do under Florida law to make retirement accounts exempt.
All right. Well, there’s a big misconception out there, John, that since you have a retirement account, that’s a countable asset, and you have to spend that down to qualify for Medicaid. But you have a way, under the Florida statutes, to protect a person’s retirement account, even if they go in a nursing home. That’s a good summary of it?
Absolutely. Yeah. I think most people are not aware of that, that you can make these accounts exempt.
Also if you cash it in … Let’s say you have a $100,000 IRA, and it’s a traditional IRA … There are two general types. You have a traditional and a Roth. If you cash in a traditional IRA for $100,000, you’ve generated $100,000 in income in that year. That’s another advantage to not surrendering the IRA and converting it into an exempt IRA.
You can also, and would normally, have beneficiaries named on these retirement accounts. If the Medicaid applicant later passes away, the beneficiaries will inherit that money later on.
Just like a homestead is exempt and a homestead can pass on to the heirs and not be a countable asset.
John, let’s talk about one more exempt asset with respect to how Florida Medicaid treats retirement accounts because I’ve got a caller waiting now. Let’s talk about rental homes as an exempt asset as far as principal goes.
Yeah. This is another area that the State of Florida is very, very generous. The State of Florida says that if a Medicaid applicant or a spouse owns a rental property, and that rental property is rented for fair market value, the State of Florida will treat that asset as entirely exempt.
Let’s say, for example, you have an unmarried Medicaid applicant with a half a million dollars in a bank account. Well, one of the best ways to shelter that large amount of money is for the Power of Attorney to go out and purchase a rental property in the Medicaid applicant’s name, rent that property out, and the State of Florida will treat that as an entirely non-countable asset.
We set that up to avoid probate when the person passes away. There’s a couple different ways that we can do that. Then later on, if the Medicaid recipient passes away, the beneficiaries will inherit that property without a state recovery.
So again, very generous that the State of Florida allows us to do all of these things in light of this huge federal deficit that we have, and which continues to grow.
All right, John, one more point. If the income from the retirement account, and the fair market rent paid on the rental home, and their Social Security check exceed the amount of income they can have per month, tell us about the qualified income trust.
The State of Florida is called an income cap state. The income limit this year is $2,382 a month in gross monthly income. Social Security, pension, the IRA payment, the gross amount, would all count towards that limit.
Now, rental property is treated a little bit differently. The State of Florida says that the Medicaid applicant is allowed to escrow the property taxes, property insurance, monthly maintenance fees, and there are some other expenses.
Let’s say that the gross rent is $1,000 a month, and those monthly expenses are $500 a month. The State of Florida allows us to escrow the $500 a month in expenses. That other $500 is the only amount that counts towards that income cap.
So again, how Florida Medicaid treats retirement accounts is great and here again with a rental property, Florida is very generous in that regard also. That way you can pay for the property taxes, property insurance, maintenance expenses out of the rent each month.
John, give everyone your contact information if they’d like more information about what we’re talking about here.
Oh, the office number is 727-586-3306, extension 104. My cell phone is 727-748-5374. My email address is John J-O-H-N @attypip.com.
Thank you so much, John. You have a great Sunday.
Okay. You too. Thank you very much.
Thanks for all the great information. Okay. Thank you very much.
Just a comment about the information you learned about Medicaid and attorney John Frazier there. A lot of clients, they’ll call, and they want to know … The conversation rolls around to they have to spend all of their assets to qualify for Medicaid. I’ve had many calls where this is; they had already started doing this, maybe some for a number of years or so. They were just spending down their assets.
What attorneys like John Frazier, Medicaid attorneys, VA planning attorneys, do is they do everything by the books, everything by the statutes. They know what can be done to protect assets, to save legacies, to handle estates, and how to deal with certain assets, and how to change assets from one type of asset to another asset that actually protect the assets.
So if you have someone in a nursing home in a private pay, and they’re just slowly, their estate is dwindling down to nothing so they can qualify for Medicaid, a lot of those assets can be protected, and government benefits can be maximized. Everything’s done by the books on this. There’s no … Everything is disclosed to the Department of Children and Family when you do the application.
Some people might think it’s something wrong with doing that type of planning, that Medicaid is only for poor, extremely poor people. That’s not … Some people don’t perceive it that way. Some people perceive they’ve paid into Social Security, worked their whole lifetime, and this is a benefit that they’re entitled to if they do it properly.
Again, if you’d like to contact our office for that, we have a toll-free number. The office number is +1 800-226-3529. That’s +1 800-226-3529. That’s certainly part of the Medicaid and also VA planning for those in assisted living.
Also, don’t forget to check out our free ebooks on elder law topics as well as Medicaid planning.