Another common Medicaid planning tool used to achieve nursing home Medicaid eligibility more quickly (while preserving assets) is through the purchase of a Medicaid Compliant Annuity. Unlike Medicare, Medicaid eligibility requirements do include analysis of the applicant’s assets. When employing a Medicaid Compliant Annuity, assets normally designated as spend down assets for long-term care purposes can be transferred to family members and loved ones; these assets are exempt from countable assets and are preserved.
Medicaid Compliant Annuities (or MCAs) are strictly regulated by the laws of each state, with each state having their own state-specific regulations. In most states, however, a number of common allowed procedures apply. An MCA is a very specific type of annuity employed to create early Medicaid eligibility, and is always what is referred to as a SPIA, a Single Premium Immediate Annuity. These annuities are always irrevocable purchases of the initial full lump sum of MCA designated assets; they may not be surrendered. Additionally, the annuity must be an immediate annuity, i.e. it must start returning payment of an income stream immediately upon purchase. Additionally, the annuity must be actuarially sound, i.e. it’s term must not exceed the annuitant’s life expectancy. Finally, the primary beneficiary must be an allowed beneficiary in the event that the Medicaid applicant dies during the term of the annuity contract. In some cases, the State must be named as the primary beneficiary or as the contingent beneficary. And the primary beneficiary designation is non-assignable to another beneficiary.
MCAs are used in different ways for single individuals and for married couples. For single individuals, an MCA allows for “Half a Loaf” Medicaid planning. This term refers to the strategic use of approximately half of a nursing home resident’s spend down and countable assets to pay for care costs in a way that allows the other half of the assets to be saved. Under this planning strategy, the MCA is purchased with approximately half of the current countable assets (the exact percentage depends upon a number of factors); the MCA annuity payments are then used to pay for the care costs in the coming months. The other half of the assets are protected and can be transferred to a trust, or to loved ones or family members. These funds will not need to be used on care, and are not subject to estate recovery. After the MCAs annuity payments have expired, the care recipient becomes Medicaid eligible, this qualifying for Medicaid immediately. One half the assets have been preserved.
For married couples, the MCA is equally effective as a long-term care planning tool, but the annuity is used in a different way. MCAs are purchased after a Division of Assets has been filed and the community spouse has been assigned her Community Spouse Resource Allowance. (For an explanation of a Division of Assets, please refer to our information page on Divisions of Assets.) For most couples, the Community Spouse Resource Allowance has not protected all of the couple’s assets, and thus the spouse receiving nursing home care is still subject to spending down these excess assets. However, these excess assets (initially considered Medicaid assets) over and above the Community Spouse Resource Allowance can be used to purchase a Medicaid annuity. Through this MCA purchase, the excess assets are converted from countable assets into an income stream, creating monthly payments for the community spouse, thus creating larger monthly income and returning the annuity principal back to the family. At the end of the annuity term, the community spouse will have 100% of the annuity principal returned to him or her, thus saving all of the couple’s assets, with no periods of ineligibility or any penalty period.
Medicaid Compliant Annuities are employed in a large number of Medicaid planning programs, but they are complex. The professionals at QMC have guided clients through the purchase of hundreds of MCAs saving millions of dollars for our clients. MCAs are not to be employed without the expertise of an experienced professional, be that QMC or an elder law or qualified estate planning law attorney. Additionally, the annuity should only be purchased from an insurance company well versed in the MCA field.
Contact QMC to learn more about for qualifying for Medicaid benefits while still preserving assets through the use of Medicaid Compliant Annuities.