A New Opportunity in Medicaid Planning

From 2012:

By Arthur C. Weinshank, Dolores R. Schiesel, and Peter J. Harrison

Many couples encountering Medicaid share a common dilemma: how to protect their assets when one spouse requires skilled nursing facility care? Until a few weeks ago, if a couple in this situation had a house, a car, a prepaid funeral contract for the ill spouse, and $500,000 in other assets, the healthy spouse would be permitted to keep $113,641, the house, and the car. The ill spouse would keep $1,600 and the prepaid funeral contract, and rest of the couple’s approximately $385,000 in assets would have to be spent on nursing home care or other goods and services. Understandably, the prospect of a healthy spouse living the rest of his or her life on around $113,000 is uncomfortable and frightening; however, now it is possible for the healthy spouse to keep the $385,000.

The recent Second Circuit Court of Appeals’ decision in Lopes v. Department of Social Services held that a healthy spouse may now purchase a specific kind of annuity with assets which exceed the protected amount without affecting his or her ill spouse’s eligibility for Medicaid. When properly set up, these annuities, which provide income to the healthy spouse for his or her life expectancy, are not counted as assets to be spent down. Instead, the annuity becomes a source of regular payments which the healthy spouse can live off of in addition to his or her protected savings amount while still permitting the ill spouse to receive medical assistance. This is not a typical annuity that you would buy from your broker. There are many essential terms ranging from proper designated beneficiaries to whether the annuity stream may be transferred. This is a specific annuity which was approved in the Deficit Reduction Act of 2005 and confirmed for use in Connecticut by the Court of Appeals to protect a healthy spouse’s financial stability during life while permitting an ill spouse to receive aid. For example, these annuities must name the State as the remainder beneficiary and should the healthy spouse not survive his or her life expectancy, the State would be reimbursed to the extent of aid provided to the ill spouse from any remaining balance in the annuity. If there is any amount of the annuity remaining after the State is repaid, that amount may be passed to any children.

Now if a couple had a house, a car, a prepaid funeral contract for the ill spouse, and $500,000 in other assets, the healthy spouse would be permitted to keep $113,641, the house, the car, and purchase an annuity to pay income for his or her life expectancy, with a principal of approximately $385,000. The ill spouse would keep $1,600 and the prepaid funeral contract, none of the couple’s assets would need to be spent down on nursing home care, and the State would recover against the annuity at the death of the healthy spouse only if there is any value left in the annuity.

The purchase of a proper annuity can be coupled with other planning techniques to protect your assets from the spend-down provisions of Medicaid. In previous articles, we have discussed transferring your home to a trust for your children while protecting it from their creditors and from Medicaid. A Connecticut Partnership long term care insurance policy permits you to preserve an additional amount equal to the value actually paid out by the policy on your long term care. Finally, a properly drafted trust in your Will permits you to provide supplemental needs for your surviving spouse (even if your spouse is receiving state aid) and leave an inheritance for your children, without any payback to the State.

There are countless annuities sold by brokers and if the wrong one is purchased it will not be protected from the Medicaid spend down provisions, or be available to you. The longer you wait to do Medicaid planning, the fewer options you may have to protect your savings and provide a comfortable lifestyle for yourself. Before you engage in any planning, you should talk to your Elder Law attorney about the timing, terms, and whether these tools are right for you.