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Spouse Annuities

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An Example of a Single Person Annuity


Annuities are often purchased for a single person when a gift has been made rendering the applicant ineligible for Medicaid.   The goal of the gift/annuity planning is to use an annuity to pay through an ineligibility period caused by a gift.

 In this example, John is a competent single 85 year old nursing facility resident.  He meets the medical criteria for Medicaid eligibility.  That is, he is nursing home facility clinically eligible.  His resources include $200,000 in appreciated stock and cash in the amount of $150,000.   He has net income of $2,000 per month.   The nursing home is charging $7500 per month.  He has one child – Richard.

John creates an irrevocable grantor trust.  He transfers the appreciated stock to the trust. His creates an ineligibility period of 26.6 months ($200,000/$7515).   To start the ineligibility period and create a source for payment of the nursing home, John will create a short term Medicaid Qualifying Annuity.

To purchase the annuity, you will need to provide the basic information on the Annuity Quote Form.    Provide his age, date of birth and the annuity premium of $150,000.  Ask that the term of the annuity be limited to the ineligibility period of 27 months.  In this case, the quote returns a monthly income figure of $5362.97.  The payments from the annuity serve to pay through the ineligibility period.   Once John purchases the annuity with the $150,000, he has converted the remaining resources into a stream of payments, defined as income by the Medicaid Act.

Provided the annuity has the proper irrevocable, non-assignable terms, actuarially sound terms, the premium paid to the nursing home will not be considered a resource.  Provided the annuity also names the Department of Public Welfare as a primary beneficiary, the creation of the annuity will not be considered a disqualifying transfer.

Keep the annuity payments along with John’s income below the private pay figure.  You need a “but for” denial to start the ineligibility period.  That is, John is eligible for Medicaid, but for the disqualifying gift.  If John’s income pays the nursing home bill in full, there is no outstanding medical expense.  Consequently, John would be ineligible for Medicaid for a reason other than the gift.  In this case, John has total income of $2000 + $5362.97 =  $7362.97.    He has a shortfall of $7500 - $7362.97 = $137.00.   Since annuity payments are pure income under the Medicaid Act, John has a $2400 disregard.

You will need to name the state as primary beneficiary in order to avoid have the creation of the annuity treated as a disqualifying transfer.   However, the annuity will be exhausted by the time the ineligibility period expires.   Therefore, the state will not have an interest in the annuity.

When asking for quotes, keep in mind that they are good for 7-14 days.  Then they will need to be refreshed.  Quotes can be obtained quickly – within 24 hours.  If you decide to proceed with the purchase of an annuity, the agent can send you the application immediately.  The annuity will be considered purchased on the date the check is cut (a cashier’s check is recommended) and application signed.  The turn around time from quote to signing of application could be a matter of days.

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