When many older individuals find that they need assisted living or long-term nursing care, they also discover that they do not have sufficient income or other resources to afford it. Medicaid provides coverage to eligible individuals for long-term care, but establishing eligibility can be difficult. Many people who cannot afford to pay for long-term care still have too many assets to qualify for Medicaid. This can create two competing problems when an individual who needs long-term care has a spouse who does not. The spouse in need of care must reduce their assets to a level that qualifies for Medicaid coverage, but they do not want to leave the other spouse impoverished. Medicaid allows certain kinds of transfers of property for spouses in this sort of situation, including the purchase of a Medicaid-approved annuity. This type of annuity allows the couple to plan for the continued support of both spouses.
A person cannot simply dispose of assets in an effort to meet Medicaid’s guidelines. Officials at both the federal and state level carefully scrutinize recent transactions to see if an applicant has transferred assets solely in order to qualify for Medicaid, such as by giving property away. However, when assets are placed into a Medicaid compliant annuity, it can help protect the assets for the well spouse and achieve immediate qualification for the spouse in long-term care. The state Medicaid program, operated by the Michigan Department of Health & Human Services (DHHS), has established guidelines for how an annuity can provide income for one spouse while the other receives long-term nursing care. It publishes its policies on Medicaid eligibility in the Bridges Eligibility Manual (BEM).
An annuity is a financial product that provides an income stream to a person known as the “annuitant.” This could be the person who purchased the annuity, or someone else designated by the purchaser. Part 401 of the BEM defines an annuity as an insurance contract that “establish[es] a right to receive specified, periodic payments for life or for a term of years.” It notes that annuities are typically “designed to be a source of retirement income.”
When reviewing a Medicaid application, DHHS will include some, but not all, of the applicant’s assets in their evaluation. The assets that are counted are known as “countable assets” or “countable resources.” They include cash and various other assets. For a list of non-countable assets, click here.
In order to be eligible for Medicaid coverage, an applicant’s total amount of countable assets must be below a certain amount. DHHS will look at recent sales and purchases of assets, and look to see if an applicant has disposed of anything below fair market value. This can lead to a finding of ineligibility for a certain amount of time, known as a penalty period.
If a person who is seeking Medicaid benefits for long-term care purchases an annuity in order to reduce their countable resources, Medicaid says this is ordinarily considered a transfer for less than fair market value. It establishes criteria, however, for annuities that are allowable for Medicaid eligibility.
A Medicaid compliant annuity must meet the following list of criteria, found in part 401 of the BEM:
Funding for an annuity can also come from other retirement resources without interfering with Medicaid eligibility, according to part 401 of the BEM, under certain circumstances. For example, an “individual retirement annuity,” as defined by § 408(b) of the Internal Revenue Code, is considered a Medicaid-approved annuity. An annuity purchased with the proceeds from a simple IRA or certain other retirement plans is also approved by DHHS.
Annuities can be a great tool for Medicaid planning in a spousal situation. However, it is important to note one additional requirement of a Medicaid compliant annuity, when the annuitant dies the State of Michigan must be named as the beneficiary of any remaining assets in the annuity, up to the amount Medicaid paid for the spouse receiving benefits.
While this approach to Medicaid qualification is not going to be right in every circumstance, it is important for families to know that there are options for protecting the well spouse and marital assets. However, if you are faced with a situation where a family member is entering into long-term care, it is imperative that you speak with an elder law attorney as soon as possible, to ensure you have all of the information to make an informed decision.
Rebecca J. Braun is an estate planning and elder law attorney who practices with Mobile Legal Services, PLLC, in Southeast Michigan. If you have questions about estate planning and Medicaid eligibility, she is available to assist you. She will travel, free of charge, to clients in Oakland, Washtenaw, Wayne, Livingston, and Southern Macomb Counties. Please contact us today to schedule an initial assessment.