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Why Take the Lump Sum Option?

If you are approaching retirement, and have an option to receive either a stream of income or a lump sum distribution from a pension or retirement account, it may in some cases be better to take the lump sum. Here’s why.

If you eventually need nursing home care, any income streams you receive from your pension, deferred compensation, or other plan, will go to the nursing facility. It’s a Medicaid requirement, and a way of forcing you to pay for at least part of your care. If you take the lump sum option, you’ll have the opportunity to protect that money by putting it in a trust.

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pension pension or retirement concept with word on business office folder indexTaking a lump sum from a pension allows it to be treated as an asset that you can transfer to a protective trust structure. Otherwise, it will be considered as an income stream, which is vulnerable to nursing home contribution.

Legally, once the money is in a trust, you don’t own it anymore. Yet the trust can be constructed so that money can be made available for your needs. So although by law the money is no longer yours, you still benefit from it. That means it helps you maintain your quality-of-life, and whatever is left after you pass on can go to your loved ones.

By transferring your lump sum distribution to a trust, you may no longer have to use that money to pay for a nursing facility. Then you’ll be eligible for Medicaid to pay all or a significant part of the cost, depending on whether the transfer was made beyond the “look back” period (see Strategy No. 3: Plan for Home Care and Nursing Home Facility Care while You Still Can), or other planning was done (see Strategy No. 14: Private Annuities Can Help Protect Your Assets).

In a case involving a widow in her 70’s, suffering from Alzheimer’s disease and other health problems, Lamson & Cutner assisted her in successfully obtaining Medicaid home care using this lump sum strategy. Money was taken from an IRA, and the after-tax balance was placed in a protective trust. Excess income was transferred to a Pooled Income Trust. With this planning, she was able to retain the benefit of her financial reserves, instead of having to “spend down” her resources under Medicaid eligibility requirements.

We then filed a Medicaid application for home care, which was approved. This allowed her to maintain her sense of personal dignity, by receiving the health services she needed in the comfort and security of her own environment. Down the road, she may need nursing home care, but by then the money that she took from her IRA will remain protected, as long as it was put in the trust beyond the “look back” period.


25 Strategies to Prevent Financial Ruin from Long-Term Health Care Costs

  1. You can qualify for Medicaid (even if you don’t think so)
  2. The “Wait and See” Approach can Result in Ruinous Health Care Expenses.
  3. Plan for Home Care and Nursing Home Facility Care while You Still Can.
  4. What’s the difference between Medicare and Medicaid?
  5. It’s NOT too Late for Effective Medicaid Planning (even if you think it is)
  6. Why Hire an Elder Law Attorney?
  7. Don’t Prepare Your Own Medicaid Application
  8. Trusts Can Protect Your Home and Your Money!
  9. Special Trusts for Specific Purposes
  10. Protecting Co-op Apartments Require Special Handling
  11. Evaluate Your 401k or IRA Carefully when Planning for Medicaid
  12. Why Take the Lump Sum Option on Your Pension or Retirement Account?
  13. Choose Your Trustee Wisely
  14. Private Annuities can Help Protect Your Assets
  15. Caregiver Agreements Help Achieve Medicaid Eligibility
  16. Keep Your Medicare Insurance
  17. The Durable Power of Attorney
  18. Elder Law and Estate Planning
  19. The Health Care Proxy vs. the Living Will
  20. How to Choose an Elder Law Firm
  21. Streamline Your Financial Affairs and Record Keeping
  22. New York State is More Generous than Other States
  23. Your Attorney can Help Find the Best Care for You
  24. Long-Term Care Insurance Won’t Necessarily Solve the Problem
  25. Compassionate Elder Law Planning Focuses on Your Future Quality-of-Life!
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