My husband Dan has recently been admitted to the nursing home. Medicaid has told me that I must spend half of our $150,000 savings on his nursing home care before Medicaid will pay. My friends tell me that if I buy an annuity with that money instead, Dan will qualify for Medicaid immediately. Is that what I should do?
The type of annuity used in Medicaid planning is an immediate irrevocable annuity. It is not a tax-deferred annuity. A tax-deferred annuity — the most common type of annuity — is not irrevocable, although the owner is penalized for withdrawing the money from it before the annuity comes due. The annuity used in Medicaid planning is sometimes called a “Medicaid friendly” annuity.
Here is how a Medicaid friendly annuity works: As the spouse at home — the “community spouse” in Medicaid-speak — Martha gets to keep half of her and Dan’s savings under Medicaid’s complicated asset rules for spouses. That half, $75,000, is called her “community spouse resource allowance.” Of the other half, Dan gets to keep $2,000. The rest of their savings, $73,000, must be reduced to zero before Dan can qualify for Medicaid nursing home benefits. (To put it more accurately, Martha and Dan can have no more than $77,000 before Dan qualifies for Medicaid.)
Martha and Dan pay an insurance company $73,000 for a Medicaid friendly annuity. The insurance company agrees to pay Martha $1,000 a month for a certain period of time, for example, seven years. As long as Martha’s “actuarial” life expectancy is at least seven years, the annuity is regarded as “actuarially sound” and therefore will meet the requirements for a Medicaid friendly annuity imposed by many State Medicaid agencies.
Instead of spending that $73,000 on the nursing home, Martha and Dan spent it on a Medicaid friendly annuity. Dan qualifies for Medicaid immediately and Martha gets $1,000 a month for the next seven years.
Before you buy an annuity, however, please consider the following:
In Medicaid planning, the only reason to buy them is to protect the nursing home spouse’s share of the couple’s money from the nursing home. But there are other ways to protect that money. Can you raise the community spouse resource allowance by a Medicaid appeal or by court order? If so, you don’t need to buy an annuity.
Remember that the reason you are buying an annuity is to qualify your husband for Medicaid. Purchasing an annuity may be an excellent option for you, but it may not be the best option. Before making the annuity purchase, please get advice from a qualified elder law attorney.
Note: This document is not meant to give legal advice. You are not to rely on the limited information given here. Before acting on any information presented here, you are strongly urged to consult with an attorney who is competent in this area of the law.