Transfer IRA assets

Question:

My mother-in-law has an IRA. She is applying for Medicaid and moving to an assisted living facility. My husband is permanently disabled, and I have read that it is okay to transfer assets to a disabled child. Can she liquidate the IRA and then give it to my husband? Does my mother-in-law have to report the IRA as income and will that affect her eligibility for Medicaid?

Answer:

A lot of questions. We will do our best to answer them, but we are not acting as your attorney and to be certain of how the rules are applied locally you will need consult with an elder law attorney who practices in your state. Matthew L. Mercer is the perfect resource for Rhode Island.

That said, first, your mother cannot transfer the IRA without liquidating it. When she liquidates it, the funds in the IRA will become taxable income to her. Whether she will actually have to pay taxes depends on the amount of the IRA, her other income, and her available deductions. Second, the income should not affect her Medicaid eligibility because while the IRA liquidation is income for tax purposes, it is not income for purposes of Medicaid eligibility. Third, as long as your husband is receiving Social Security Disability Income, he falls within an exception to the usual Medicaid penalty for transferring assets and his mother can transfer her liquidated IRA to him without penalty.

© 2015 MATTHEW L. MERCER | Attorney at Law

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