Years ago brokers, life insurance, and annuity sales people used to aggressively push Medicaid annuities claiming this product would protect your assets if you went to a nursing home. In almost all cases, this wasn’t true and the State of Michigan took action to shut down this sales practice.
What is a Medicaid Annuity? A Medicaid Annuity is an arrangement where you transfer a certain amount of money to a life insurance policy or annuity. That company then has a contract with you to provide you a certain payment each month and you’d be returned the amount you have for the annuity contract with some interest. If this complies with the Medicaid rules, the amount you provided to the annuity company is no longer considered an asset but is now income.
Fast forward to 2007 and even today, Medicaid annuities have an important planning role for “some” clients (and I strongly stress “some”). As an elder law attorney, I occasionally recommend this planning to clients in three scenarios.
The first scenario applies to a married couple and one spouse is in a nursing home. The spouse who is taking care of their husband or wife can preserve an allowance which is equal to the lesser of one-half of their combined assets or $122,600.00. In this situation, if this couple has assets above that and would otherwise have to spend them down for nursing home care, the caregiver-spouse can establish a Medicaid annuity and protect their assets.
The second situation is somewhat similar. It involves a married couple and one spouse will be going to a nursing home. If that spouse has a large IRA, rather than cashing that in, a Medicaid annuity can be used to preserve that it.
The third situation involves a widow or widower. If he/she has $100,000.00 and is now going to or will be going to a nursing home, he/she would otherwise have to spend those assets down to $2,000.00. Through certain Medicaid planning involving an annuity, the client can preserve approximately $50,000.00 and use the Medicaid annuity to pay for nursing home care for a certain period of time. Medicaid annuities can be an important planning tool for “some” clients. However, you should realize they should only be used when nursing home care is needed or imminent. You should never do this without this time frame. If you have any questions regarding whether a Medicaid annuity would be appropriate, feel free to contact me.
