Prior to changes at the federal and state level that occurred during the last decade, it was easier to use an annuity to preserve assets for your family as part of Medicaid planning. However, as a result of the federal Deficit Reduction Act of 2005, also known as the DRA, and subsequent changes to Medicaid at the state level, it has become more difficult to use annuities for Medicaid planning in certain situations.
The DRA effectively closed some loopholes that had previously allowed Medicaid recipients and their families to retain a larger portion of their property. While annuities are still used in Medicaid planning, the concern about compliance with Medicaid rules is greater than ever. If the person in need of Medicaid benefits or his spouse transfers or gifts assets in a way that does not comply with Medicaid rules, it can result in disqualification from benefits with severe financial consequences to the family. While many firms advertise Medicaid friendly annuities, many of them lack expertise in Medicaid regulations, which are some of the most complex laws ever written. Guidance from a professional is essential and you should choose your advisor wisely.
Medicaid Planning Annuity Advantages
1. A properly structured annuity can provide a community spouse the necessary income stream to maintain his or her standard of living after the institutionalized spouse is admitted to a nursing home for care. The spouses would ordinarily have to spend down their assets to qualify for Medicaid, creating financial insecurity for the spouse who has to continue living independently. The use of a Medicaid annuity allows certain assets to be converted to income for the community spouse.2. The purchase of an annuity may allow a married couple to reduce their out of pocket expenses for nursing home bills by accelerating the time frame in which the institutionalized spouse can meet Medicaid eligibility requirements and begin receiving benefits. To the extent assets transferred to an annuity are not counted as an available resource by Medicaid, the spend down process may go more quickly, which can shorten the period of time the couple has to pay nursing home bills without government assistance.
Medicaid Planning Annuity Disadvantages
1. The purchase of a Medicaid annuity is irrevocable. If you change your mind for any reason or there is no longer a need for long term care, you cannot get you money back.
2. Purchasing the wrong annuity can wreck your Medicaid planning strategy and cost you thousands, or even hundreds of thousands of dollars. Improperly transferring or gifting assets can result in disqualification from Medicaid for a long period of time. If you have to pay nursing home costs out of your own pocket due to disqualification from Medicaid, it will be very costly.
Protect Assets Through Medicaid Planning
The following book by K. Gabriel Heiser is suggested reading on the subject of annuities in Medicaid planning:
How to Protect Your Family's Assets from Devastating Nursing Home Costs.The effective use of annuities is only one aspect of Medicaid planning for long term care. There are several more articles on our site about Medicaid planning. To learn more, return to our Medicaid Planning index.
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