Medicaid Planning Part I
Medicaid Planning Using Annuities is Viable Again—
& learn about the Certified Medicaid Planner Certification Course
We used to really like “Medicaid Planning” back in the day (prior to 2006). Why? Because Medicaid planning for someone who needs it is one of the most motivating subjects an advisor can use to facilitate planning with a client and just by good happenstance, the main tool to help clients is a Medicaid compliant annuity.
What is “Medicaid Planning”
It’s planning that is typically done for clients who are about ready to enter* a nursing home (one or both spouses) and they have to deal with the realities of how to pay for that care. *Crisis planning can also be done after someone enters a nursing home.
What’s the big deal? Most clients and their advisors do not understand that in order to receive federal funds to help pay for nursing home care, there are strict limitations on how many assets can be owned and how much income can be made. If you have too many assets, you have to “spend them down” in order to receive aid. If you make too much income, you simply will not qualify for aid.
In most states singles can’t own more than $2,000 in countable assets. (FYI, there is a short list of exempted assets and wouldn't you know it, IRA and qualified plan money are NOT on the list). Married couples can’t own more than $109,560 in countable assets in most states. FYI, “Medicaid Planning” doesn’t usually take place until after the first spouse has died.
When it comes to disqualification because of income, in most states if you earn more than $2,022 a month, you will NOT qualify for financial assistance.
The old days
In the old days (pre-2006), Medicaid planning with annuities was very useful. How? You would have clients reposition assets into what are known as “Medicaid Annuities.” By doing so, you would turn a countable asset into a non-countable asset. Additionally, the income from the annuity could be positioned so that it would not hurt the financial aid available for the nursing home-bound spouse.
Additionally, when the client died, the value of the annuity would pass to the heirs without setoff (meaning the government didn’t seize the annuity to pay itself back for the aid it gave someone while living).
The death of Medicaid planning
In 2006 the Deficit Reduction Act passed and this was bad news for Medicaid planning. Many states interpreted the law to say that a Medicaid annuity paying to the non-nursing home-bound spouse would count against the spouse going into the nursing home and who was applying for financial aid. The Act setup a situation where the non-nursing home-bound spouse also had to impoverish him/herself in order for the nursing home-bound spouse to receive federal aid. Also, the government had to be the primary beneficiary of the annuity.
This just killed the use of Medicaid annuity planning because both spouses had to be impoverished in order for one of the spouses to receive non-countable income from a Medicaid annuity.
Medicaid annuity planning is back!
Because the Deficit Reduction Act was not the clearest piece of legislation, there has been some ongoing litigation to help interpret it. A few months ago a state court of appeals (2nd highest in
The court stated that certain type of payments made to the non-nursing home-bound spouse (like those coming from a Medicaid compliant annuity) will NOT count against the spouse who is nursing home bound.
That’s good for the society at large because the non-nursing home-bound spouse can maintain a standard of living while he/she still lives in the marital residence. That’s also good for financial planners/insurance advisors who miss the days of pouring hundreds of thousands of dollars into Medicaid compliant annuities.
Sign up to become a Certified Medicaid Planner™
Click here to learn about the CMP™ course and to sign up for the next in-person seminar or to take the course self-study.
If you have any questions, please e-mail info@medicaidplanningnetwork.com or call 269-216-9978.
