“People often seek immediate annuities because they want a steady income. However, financial advisors talk up another benefit as well: Such annuities may allow clients to qualify for Medicaid—a poverty program—even if they are well-heeled.”
Quite frequently, I am sitting in a client meeting when the woman (it’s usually a woman because often this conversation happens after the husband dies) who leans across the conference table and says “I don’t want the state taking my money if I get sick!”
What they are referring to is the case that if someone needs nursing care and applies for state aid, they will typically have to forfeit most of their assets to secure state aid. Often, people think this money is “going to the state” but what is really happening is that you must pay for care out of pocket before the state kicks in. Why? Let’s review some basics:
- the state paying is a MEDICAID program, which by definition is a poverty program – it’s the same program that gives health care to poor young families so therefore, in order to qualify you must be poor
- if you have assets, the state will require you spend your money before tax dollars are used to fund your care
- the state is not taking your money
Nonetheless, people would still prefer the state pay and not them. That’s fine and there are legal ways to make this happen – I just want people to understand what they are doing when they engage in legal planning that “protects” their assets and qualifies them for Medicaid. These programs are causing financial strain on the states and therefore recent legislation has limited how easy it was to “hide” assets. One strategy still exists that allow some protection of assets. Again from the article:
But Krause says that while the 2005 act became more stringent about Medicaid rules in one regard, it also helped pave the way for immediate annuities as a tool to shelter countable assets for those trying to qualify for the program. If Medicaid annuities were unacceptable as a way to qualify for Medicaid, as states often had claimed, the Deficit Reduction Act would have prohibited them. But it didn’t.
Using an immediate annuity can help protect assets:
Under the newer laws, to be Medicaid compliant, an annuity must name the state as primary remainder beneficiary. The state may be a secondary beneficiary if there’s a spouse, minor child or disabled child. Medicaid applicants also must disclose any interest in an annuity. The annuity must be irrevocable and non-assignable. And it must be actuarially sound, based on Social Security tables, and pay out in equal installments during its term with no deferrals or balloon payments. Generally, this won’t include tax-deferred annuities.
“If the purchase of an annuity fails to meet those criteria, the purchase will be treated as disposal of an asset for less-than-fair market value,” warns Greg Womack, an Edmond, Okla., financial planner.
Bottom line: there is a way to protect assets if you are within the 5 year lookback rule and you have “too many” assets.
Don’t Know What to Do?
If you are facing a situation like this for a loved one, and don’t know what to do, give me a call. We have helped people at all levels in this matter – from helping people qualify for Medicaid, to creating income plans which allow you to use their assets to pay for care services, we can help. If you would first like some questions answered give us a call – 781.393.0021 or send us a quick contact and we can go from there. Thanks for stopping by!
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