Thursday, October 11, 2012

A "protective order," a directive from the probate court regarding the assets of a nursing home patient, is a little know but highly productive tool in the Medicaid planning arsenal.

Basically, the Michigan Medicaid rules are subject to being "overruled" by a probate judge's protective order. A protective order, then, can result in the savings of tens, even hundreds of thousands of dollars.

Protective orders are most commonly used to allow the community spouse to keep: (1) more assets or (2) more income.

A recent example involved a community spouse who owned a $200,000 IRA. Normally, assets over and above the allowed "community spouse resource allowance" ($113,500 in 2012) can be preserved by transfer into a specialized trust for the benefit of the community spouse. A special problem arises with IRAs and other qualified assets (annuities, 401ks) that WILL BE TAXED if transferred into trust. The client would be looking at a tax bill of $60,000 if assets were transferred to the protective trust.

In this case, a protective order was sought asking the probate court to increase the community asset allowance from $113,500 to $200,000. The argument was made that the spouse had saved these assets for their own care, would likely need the assets in the future, and could save the assets (albeit with a tax burden) anyway. The Order was granted protecting the entire IRA for the community spouse.

Many probate courts will grant these protective orders. Others are less likely to appreciate your attempt to "Medicaid plan." In any event, protective orders are important tools for all families, especially those with community spouses, when considering Medicaid and the protection and preservation of assets.

While this may seem complicated, I can put my years of experience to work for you and your family to help navigate through issues just like this. Give me a call or contact me today - I'm happy to help!