When someone married wants Medicaid to pay for a nursing home or an assisted living facility, but has too much money to qualify, they may consider the purchase of an annuity. Annuities can be use in Medicaid Planning. Immediate income annuities are the type of annuities that are most often used in Medicaid planning. An immediate annuity is a contract that is purchased from an insurance company with a single lump-sum payment and in exchange, pays a guaranteed income that starts almost immediately. The payments got to the spouse not in the facility.
There are some catches. Annuities would have to be irrevocable as a condition to be considered a “Medicaid annuity.” Also, most states require that it be non-assignable and non-transferable. In addition, annuity payments must be completed before life expectancy of the community spouse (the spouse not in the nursing home), determined using Social Security life expectancy tables.
How it works
Let’s say a couple has about a $100,000 in assets. They do not want to have to spend it down on medical bills so they decide to buy an annuity as part of Medicaid planning. The money is put in the name of the community spouse who then purchases an immediate annuity wherein the insurance company makes payments to the community spouse. This takes the money out of the Medicaid applicant resources, allowing for the applicant to receive Medicaid.
How to avoid Medicaid penalties
To avoid Medicaid penalties, the annuity must be:
a series of substantially equal monthly payments;
nonassignable and nontransferable;
purchased from a commercial insurance company;
paid within the life expectancy of the community spouse; and
must designate the state Medicaid agency as the primary beneficiary after the death of the community spouse.
Further, you must disclose you interest in the annuity.
An example of how the life expectancy requirement works would be if the community spouse’s life expectancy is 10 years according to the social security actuary tables; and you paid $120,000 for an annuity, you must receive annuity payments of at least $1,000 a month ($1,000 x 12 x10 = $100,000).
Also, if you purchased an annuity with a term certain (let’s say 8 years), it must be shorter than your life expectancy. If the community spouse dies with guaranteed payments remaining on the annuity, they remaining payments must be made to the state for reimbursement up to the amount of that Medicaid paid for either spouse.
In the application for Medicaid, which should be done when the person is entering the nursing home, the applicant must disclose that there is an annuity. If not disclosed, the agency may terminate coverage or deny coverage.
Note that an annuity works well for couples but not for single applicants. The reason is that the the applicant would have to make monthly payments from the income received to the nursing home; but in the case of a community spouse, the community spouse does not.
When determining whether to purchase an annuity for Medicaid purposes, it is important to speak with a professional advisory because the law is evolving and new restriction may pop up in the future. Speak with us about estate planning to get ahead of the process.