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Question for the Money Doctors

Question submitted on Feb 13, 2017.

Question

is there any possible way of protecting my 457b plan if myself or wife would ever need long term care. Could I take the lump sum and take a tax hit and just basically turn money over to my children to prevent long term care from accessing it. Thanks, Mike

Answer

Protecting a family’s assets in the context of a long-term care situation is a common objective.  The rules are very complicated and often involve detailed planning from the family’s advisors including an attorney specializing in Elder Care law.  Generally speaking, your 457b plan could be protected from being accessed for your wife’s care, and mostly accessed for your own care.
For married couples, generally, the assets of the healthy spouse are protected from Medicaid in the event of a Medicaid claim of the spouse requiring the long-term care.  This is in order to ensure the healthy spouses have the appropriate financial support needed to cover their cost of living when the spouse is receiving long-term care benefits.  As of the date the unhealthy spouse enters a long-term care facility or hospital and then stays for at least 30 days, the assets of both spouses are totaled.  Generally, the healthy spouse may keep ½ of the couple’s assets up to a maximum of $119,220 (in 2016), depending on the state.  This is often referred to as the “community spouse resource allowance”.
Your income would not be included in determining your wife’s Medicaid eligibility, but it would be taken into consideration for your own long-term care needs, depending on your other assets, income and resources.  If you are still working and your wife requires long-term care, your income generally would not be included in determining the cost of her care, though this can also vary by state.
Not being advised of your financial situation, tax situation or age, normally taking a lump sum withdrawal from the 457b plan would be very unfavorable tax-wise and potentially push you up several tax brackets.  This could decimate your asset base, and while the clock would begin (with your inquiry) on the Medicaid 60-month look back concept, you would lose the time value of the underlying investment(s) and most likely pay significantly more in taxes upfront.  Therefore, you may want to consider working with a CPA/PFS in your geographic region www.findapfs.org and an attorney specializing in Elder Care law to put a plan in place specific to your overall situation.


For additional information visit http://www.360financialliteracy.org/

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