IRAs, (d)(4)(A) Trusts & Medicaid

Krause Financial

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

Recently, I worked on a case involving an individual who wanted to put his $90,000 IRA into a Self-Settled (d)(4)(A) Trust.  Even though I could get the IRA transferred into a tax-deferred annuity owned by the trust, there was a question as to whether the transaction involved a taxable event.  To eliminate the question, the safest course of action was to obtain a favorable private letter ruling.  However, the cost of such a ruling, whether favorable or not, is approximately $16,000.  This is a high cost in light of the fact that the ruling may not even be favorable.

In the alternative, I determined that if the entire account was subjected to income tax, both state and federal, the individual would be left with net investable proceeds of $73,650.

Not wanting to accept the economic risk of an unfavorable private letter ruling, and being left with only $74,000 of investable proceeds, the individual opted to proceed with the second alternative.

Additionally, in that the individual had no immediate income needs, the Trustee invested the $73,650 into a tax-deferred annuity, which included an eight-year rate guarantee of 4.10%.  Assuming no withdrawals, the annuity would have a value of $101,573.07 at the end of the eight-year term.  Finally, with the annuity being annuitant-driven, the trust as the primary beneficiary would collect the entire account value following the insured’s death.


Attorney Access

Access More In-Depth Resources

Join Attorney Access to view our entire library of white papers, case studies, and state-specific planning information.