While the need for asset protection using life insurance is a common practice, and the need for it widely accepted, many seniors either fail to see the need for long-term care insurance, or are put off by the cost. Statistically however, long-term care insurance is much more likely to be needed than homeowners’ insurance or auto insurance.
Because Medicare will pay for hospital and physician bills, but not long-term custodial care, it pays to look ahead as you approach retirement. If long-term care insurance seems out of reach, or you are unable to medically qualify for a policy, consider a Medicaid Annuity.
The reason for adding a Medicaid Annuity to your financial planning is simple. Medicare will not pay for long-term care, and with nursing home costs ranging from $3,000.00 to $5,000.00 a month, an estate can be reduced to nothing very quickly. Medicaid does not begin to pay until the patient has reduced his or her resources below $2,000.00 in most states. In other words, the patient is reduced to poverty before becoming eligible for Medicaid help.
A Medicaid Annuity enjoys some special treatment in this situation, allowing the patient to retain assets while still getting assistance from Medicaid. Let’s take a look at a Medicaid Annuity.
Medicaid Annuities are immediate annuities that fall under the stipulations of the Omnibus Reconciliation Act and later legislation. There are also Medicaid-friendly annuities that have provisions allowing them to be converted to Medicaid Annuities.
To meet the guidelines, the annuities must begin their payout period before the patient actually applies for Medicaid. In addition, the payout period must conform to the life expectancy of the annuitant, and the annuity must be irrevocable. Here’s how a Medicaid annuity could be used to preserve the assets of an elderly patient already in a nursing home.
Ms. Jones, having entered the nursing home, has $100,000.00 in her bank account. In order to qualify for Medicaid in most states, she must spend down $98,000.00 of her own money before becoming eligible for Medicaid Assistance. By converting these funds to a properly structured Medicaid Annuity, Ms. Jones can create an income stream for life, while still retaining eligibility for Medicaid assistance.
Ms. Jones must be careful that the combined monthly income from the annuity together with any social security and pension benefits she receives is below the allowable income limits to still qualify for Medicaid. Even if Ms. Jones total income was just $1 above the allowable limits, she may not be eligible for Medicaid assistance.
In the case of a married couple, most states will allow exemptions on certain assets such as a home and automobile. In this case the healthy spouse may benefit from the income, while eligibility for Medicaid assistance is still retained by the ailing spouse.
It’s important that legal advice be obtained before any action is taken. Each individual state carries its own requirements for income levels and exempt assets, and because the annuity contract is irrevocable, all possible scenarios must be considered before taking any action. With planning, the dissipation of assets can be avoided or minimized by the use of a Medicaid Annuity.
Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.
Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.
