Under certain circumstances, Medicaid pays for stays in a nursing home. However, in order to qualify for Medicaid an individual or couple has to have countable assets under a particular amount. If an individual or couple’s countable assets exceed the Medicaid asset cap, one option is to simply spend down assets until the countable assets are below the limit. However, there are other options to become eligible for Medicaid.
Under certain circumstances, purchasing a Medicaid compliant annuity to become eligible for Medicaid may be an attractive option. However, the requirements that make an annuity Medicaid compliant limit the usefulness of using an annuity as a Medicaid qualification vehicle.
An annuity works by turning an upfront payment of money to a financial institution into a series of monthly payments from the financial institution to the purchaser of the annuity over a fixed period of time. In the case of Medicaid compliant annuities, the money used to purchase the annuity no longer counts toward the Medicaid asset cap. Additionally, the income from the annuity also does not affect Medicaid eligibility.
However, the requirements of Medicaid compliant annuities limit their attractiveness as a Medicaid planning tool. While theoretically a single person could purchase an annuity to become Medicaid eligible, purchasing an annuity generally only makes sense for couples in order to provide a Medicaid exempt income stream for the spouse not in a nursing home.
Medicaid compliant annuities must be irrevocable and nontransferable. In the case of a couple, the first beneficiary can only be the spouse of the partner in the nursing home. The second beneficiary must be the state Medicaid agency. If the beneficiary spouse dies before the term of the annuity is completed, the state can then recover the cost of the care provided from the remaining balance of the annuity. The term of the annuity must also end before the life expectancy of the beneficiary as determined by Social Security life expectancy tables.
Additional requirements are that the annuity must be purchased from a qualified commercial institution, begin immediately, and provide approximately equal monthly payments.
Given these restrictions, purchasing an annuity to become Medicaid eligible only makes sense in a limited number of circumstances and should only be purchased after consultation with an elder law attorney.
Ideally, there are better steps that can be taken to protect assets for future beneficiaries while considering future Medicaid eligibility. However, these steps generally require long term planning in order to prevent assets from being recovered by the state in the case of utilizing Medicaid coverage. An elder law attorney can help develop a plan that makes sense for your financial situation.
Please call Martha C. Brown & Associates at (314) 962-0186 to begin developing a plan to protect your estate in the case of a potential nursing home stay.