Sunday, September 19, 2010

Medicaid Annuities protect your assets if your husband or wife needs a nursing home.

Annuities have become a vital planning tool for people seeking to protect their resources from the costs of long-term care. Federal law (The Deficit Reduction Act of 2005) authorizes the use of specialized annuities to gain immediate eligibility for Medicaid provided the annuity complies with the provisions of the law. In effect, people with too many resources to qualify for Medicaid can make those excess resources “disappear” through the purchase of the right annuity investment.

At the same time that the DRA gave favored treatment to annuities, that law placed tough restrictions on asset transfers and other planning options. As a result, knowledge of annuity-based planning is now a requirement for anyone seeking to protect their assets from the cost of long term care. 

There are many variations of annuity investments. The type of annuity that is useful in asset protection planning is a form of “immediate annuity.” A commercial immediate annuity is purchased from an insurance company. The investor pays a sum of money to the insurance company. In return, the insurance company agrees to provide payments to the investor over a stated period of time. With an immediate annuity, the insurance company begins to make the contracted payments immediately.

Through the purchase of an annuity that conforms to the requirements of the DRA, (a “DRA compliant annuity”) individuals and couples who would otherwise have too many resources can qualify for Medicaid benefits. These annuities are an approved means by which an individual or couple can reduce excess resources without incurring any penalties.

The purchase of a DRA compliant immediate annuity can be a particularly valuable investment for the community spouse of an individual who needs long-term care. In determining eligibility for Medicaid benefits, a married couple’s countable resources are pooled and excess resources are at risk. However, a community spouse can retain all of his or her income without affecting the Medicaid eligibility of the institutionalized spouse. 

An immediate annuity converts a cash sum into a guaranteed stream of payments. Such payments are treated as income under Medicaid law. As a result, the purchase of an immediate annuity can convert an otherwise countable excess resource (such as cash) into income for a Medicaid applicant or a non-countable stream of payments for the community spouse.

For married couples, the income from a DRA-compliant enhances the long-term financial security of the community spouse. The purchase of the annuity spends down a couple’s excess resources to the level required for the institutionalized spouse to become financially eligible for Medicaid/LTC benefits. The cash that is converted to income is recouped with interest over time as annuity payments are made to the community spouse.

My law partner, Matt Parker, was the attorney on the case, James v. Richman, which established that states must follow federal law and allow their citizens to use DRA annuities to protect their assets.  Matt did a video to show other lawyers and their clients how to protect their assets by purchasing a DRA annuity. You can view that video by clicking on the following weblink:
How to Use Community Spouse Annuities

 For more tips on how to protect your family's financial security from the cost of long term care, visit our website by clicking on the following link: Marshall, Parker & Associates

DISCLAIMER: This general information is not intended, and should not be construed as legal advice. This posting does not create any attorney client relationship. Its author is licensed to practice law in Pennsylvania. For specific advice about your particular situation, consult a lawyer who is licensed to practice in your jurisdiction.

1 comment:

Unknown said...
This comment has been removed by a blog administrator.