If only he had saved more. If only she had invested in this fund instead of that one. If only he had picked the right lottery numbers.
As attorneys specializing in long-term care planning, we see clients grapple with those “if-onlys” all the time. They’ve reached a point at which they need long-term care, but they don’t have the means to pay for it out of pocket. Medicaid will pay for care but will only accept applicants with few assets. Though becoming eligible is possible, it may require spending down money so there’s very little left. (Currently, a Massachusetts resident who wants to be approved for Medicaid coverage may have no more than $2,000 in countable assets.)
Giving the money to a relative isn’t an option because Medicaid programs have strict requirements about how an applicant can spend down assets. Simply gifting the money to someone is considered a transfer of assets, and that’s not allowed. This is how people find themselves in the strange position of having too much money to receive Medicaid but not enough money to pay for care without it.
While we sympathize with the fear and frustration that clients experience when they find themselves in this situation, we recognize that there’s no going backwards when it comes to long-term care planning. Looking for solutions is the most productive way to tackle the Medicaid application process. A few options are open to people who want to preserve their assets while staying eligible for coverage, and Medicaid annuities are one of those options.
How Medicaid Annuities Work
An annuity is essentially a contract between an individual and an insurance company. The client pays a lump sum or makes several payments to the insurer, which in turn gives him monthly payments that should last over the course of his life. (Insurers look at actuarial tables to estimate the lifespan of annuity buyers.)
When we talk about a Medicaid annuity, we’re talking about an annuity that complies with some very specific requirements and therefore complies with Medicaid eligibility rules.
Medical annuities are generally used by married couples. As long as the annuity meets the requirements laid out by Medicaid, the money that the couple spends on it won’t count as a transfer and won’t affect the applicant’s eligibility status. It must be irrevocable and immediate, meaning the owner can’t pull money out of it through any means other than the scheduled payments. Also, the annuity must not exceed the life expectancy of the “community spouse” (the person who isn’t seeking Medicaid coverage), as determined by actuarial tables.
Why You Might Need One
Here in Massachusetts, MassHealth – our state-run Medicaid program – looks at the financial picture of both an applicant and his or her spouse. In order for an applicant to be approved, his or her spouse may have no more than $126,420 in countable assets. While substantially more than the $2,000 allowance for applicants, $126,420 may not be enough money for the spouse to live on forever.
Creating a Medicaid annuity provides a steady stream of income for the community spouse. He or she can spend down assets to get below the $126,420 cap and still be assured of receiving a monthly check, without affecting the other spouse’s MassHealth eligibility.
It’s important to note that any money left in the annuity when the community spouse dies will go to MassHealth first, as reimbursement for the benefits the applicant has received. Anything left after that may be passed to children or other beneficiaries.
Investing in a Medicaid annuity isn’t a way to grow your money, and it’s not an effective way to pass assets along to your heirs. Rather, it’s a way to preserve as much of it as possible so the community spouse can continue to live in comfort while the other spouse receives long-term care.
Could buying a Medicaid annuity give you or your spouse a sense of financial security in coming years? Contact Ladimer Law to discuss specifics.
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Ladimer Law specializes in estate planning. We protect our clients, their heirs, and their assets by listening closely, knowing the law, and executing estate plans that fit and evolve.