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Medicaid Planning With an Annuity

By Shane Flait

Republish: EasyPublish™ Published: 31Jul2009 Word count: 663 Viewed: 218 time(s) Get Free Content For Your Site

Medicaid planning refers to arranging or transferring your assets to prevent or to minimize their use by Medicaid if pay for your long term care. This article explains how you can shelter some of your assets with an annuity while you or your spouse has Medicaid pay for your long term care costs.

There's a good chance you or you spouse will end up in a nursing home. The cost of such long term care varies across the U.S., but $70,000 per year is a reasonable estimate. Paying that can obliterate the assets of a middle income American retiree in just a few years.

Medicaid will pay for nursing home costs; but it does so only for those who are impoverished. Since Medicaid is a combined state and federal program, each state defines how little your assets must be before Medicaid will pickup your nursing home costs. Typical asset threshold levels are about $2,000 to $3,000.

When you apply for Medicaid help, it 'counts' your assets to determine if you qualify for free assistance. If not, it'll charge you annual costs appropriate to your state that you must pay from your assets until you've spent down your money to your state's threshold asset level.

You can't simply transfer your assets to someone else to impoverish yourself before applying for Medicaid. Medicaid will attribute whatever you transferred as a countable asset -unless you transferred it some 5 years - called the look-back period - before applying for help.

In the case of a married couple, when one spouse claims Medicaid assistance for his long term care, the state can consider the couple's assets for first paying for Medicaid's assistance. Rules allow the healthy spouse some percentage of the couple's assets to live on. But Medicaid will claim any amount in excess of this for payment of the other spouse's long term care costs.

An exception to the assets that can be claimed by Medicaid is any income stream the healthy spouse receives. So, by buying an immediate annuity with any excess 'countable' assets you have converts them into an income stream - which makes them a noncountable asset. Doing so also avoids the 5 year look-back period requirement, too.

To use an annuity to side step Medicaid claims, it has to fulfill these requirements:

* it must be irrevocable

* it cannot cover a term longer than the purchaser's life expectancy and the payments expected during the annuitant's life expectancy must at least equal the cost of the annuity,

* its payments must begin immediately, so a deferred annuity is excluded, and

* unless there is a spouse, a minor, or disabled child, the state must be named as the remainder beneficiary up to the amount of Medicaid provided

Lastly, the healthy spouse must name the state as the remainder beneficiary for costs incurred by the Medicaid recipient as well as herself if she ever receives Medicaid. (This provision would only come into effect if that spouse were to die before the guaranteed payments under the annuity had expired).

In a recent case in Pennsylvania, the Pennsylvania Department of Public Welfare had argued that the healthy spouse could sell the annuity for a lump sum, so it should be a countable asset. But the Third Court of Appeals (a federal appeals court) upheld the conversion of countable assets into an annuity by a health spouse with her spouse in a nursing home - but only because she would have to incur a legal liability since her annuity was both nontransferable and nonrevocable.

In response and in an effort to reduce the burden on Medicaid, Pennsylvania amended its law to forbid sellers of annuities from including a clause that makes them non-transferable and thereby allow annuities to be sold without legal liability. Such annuities can be considered assets for Medicaid purposes.

Medicaid planning requires competent legal guidance to keep your planning abreast of current laws. If you're interested in using an annuity, be sure you acquire one whose provisions will avoid Medicaid's claims.

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