A person facing the prospect of long-term care with moderate income and assets may eventually have to rely on Medicaid to pay part or all of the cost of care. Medicaid planning, using a qualified elder law attorney, allows you to correct inequities in the system.
Income Annuity in the Name of the Community Spouse
This technique relies on two Medicaid rules. The first rule is that income between couples is attributed to the spouse who owns the income. Unlike assets which have to be shared for Medicaid eligibility, income does not have to be shared. For example if the Medicaid recipient has a total income of $500 a month and the community spouse has a total income of $4,000 a month the community spouse is not required to contribute any income towards the care of his or her spouse. Medicaid will cover the bill less the $500 a month, which, less a monthly allowance must be spent towards the cost of care. The second rule allows a spouse to transfer any amount of assets to another spouse without penalty of losing Medicaid eligibility.
Using these two rules, here is how a Medicaid annuity strategy works.
The person needing long-term care — the institutional spouse — applies to Medicaid in order to receive Medicaid services. In this case suppose the couple has $100,000 of cash equivalent assets and owns a home and a car. As long as the healthy spouse — the community spouse — lives in the home she can keep the home and the car and those assets do not prevent the institutional spouse from receiving Medicaid help. In this example, the institutional spouse must spend $50,000 of the couple’s assets down to less than $2,000 and have an income insufficient to cover the cost of care and then Medicaid will take over.
Once the Medicaid application has been submitted, instead of starting the spend down to $2,000 and then receiving approval and having Medicaid pick up the balance of the cost, the institutional spouse transfers his $50,000 to his wife. This is allowable and will not disqualify the Medicaid approval process but it does not yet take away the responsibility to spend down the cash. The community spouse then uses the money to purchase an immediate income annuity for a period equal to or less than the allowable life expectancy in the HCFA transmittal 64 table. Assets have now been converted to about $800 a month in income. The income belongs to the community spouse and does not have to be shared with the institutional spouse. Therefore the spend down has been avoided. Evidence of this transaction is presented to Medicaid and because the institutional spouse no longer has any assets, Medicaid starts paying its share of the bill.
This strategy serves two purposes. First, it may give the community spouse a larger income than she otherwise would have had under Medicaid rules. Second, even though it represents income, the community spouse has managed to keep $50,000 that would normally have to be spent.
In the past, some planners have set up annuities that provide a remainder payout should the community spouse die too soon. This is usually paid to the children and in the past was used as a way to transfer assets to the children without penalty. Under the Deficit Reduction Act of 2006, the state must be named as beneficiary for any remainder payout. This new rule discourages the use of these annuities to transfer assets to the next generation.
It is important for the planner to follow Medicaid guidelines in order to avoid a penalty. If the payout period of the annuity exceeds the life expectancy in Medicaid tables, then the excess amount of total income payment over the life expectancy becomes a transfer for less than value and represents a penalty. This in turn results in a penalty period equal to the amount of excess divided by the monthly Medicaid rate in Texas, currently $142.92 per day. Medicaid will not start paying for care until this penalty period has been met with someone else paying for that care. It’s important to use a qualified adviser to make sure you do all of this properly.
If you have been told you will not qualify for Medicaid until you have spent down assets to below $2000, then give us a call at 1-800-939-9093 and we will review your circumstances at no cost to you, and if we can provide a legal solution to qualifying for Medicaid, you will know up front what it will cost and how much you will save. So, give us a call today at 1-800-939-9093 and see if we can help, you have nothing to lose except your life savings. So call Today for your free no obligation review to see if we can help save your hard earned money and get back your peace of mind!