Annuities That Help You Qualify for Medicaid and Save Your Assets

Long-term health care costs remain high and are growing. Because of this, retirees with significant assets should plan for their eventual need for long-term care. Some who desire to protect their assets, seek to get government assistance and organize their financial affairs for Medicaid eligibility. One potential way to do this is to shelter assets in categories that Medicaid considers "exempt." Certain annuities can qualify as exempt. Be very careful--the rules on this vary from state to state and the information below is for general education and not advice. Consult an elder care attorney in your state.

A Medicaid qualified annuity (often called Medicaid annuities) can play a part in this planning when one spouse has to enter a nursing home, leaving the other one at home.

What is Medicaid? Medicaid picks up the long care cost of the elderly who are impoverished. Long-term care is very expensive and can eat up savings fast and leave one destitute. These destitute victims will of course not be able to leave a legacy to their children.

Medicaid is a federal program but handled at the local level by the state you are living in. State restrictions and regulations on Medicaid vary, so you always need to be aware of your own state's policies on how to qualify for Medicaid. Some states have taken steps to eliminate the viability of using annuities to shelter assets and then the smart attorneys figure out ways to make it work.

Nevertheless, simply giving your assets away and then immediately applying for Medicaid is unacceptable under federal rules. To be safe you need to irrevocably transfer assets 60 months prior to applying. Any transfer of assets less than 60 months prior to applying to Medicaid will prompt your state Medicaid office to attribute those assets to you and require you to pay your Medicaid monthly rate (state dependent) until all those assets have been exhausted (even though you have given those assets away and no longer own them). Only then will Medicaid foot the bill.

If you still have substantial assets, you can protect some assets for your spouse, but you must strictly abide by rules for Medicaid eligibility. Here a Medicaid annuity may be used.

A typical scenario would be if one spouse desires long-term care costs to be covered by Medicaid. The couple must then divide all their assets and the spouse needing care must spend his or her assets down to less than $2,000, the Medicaid qualification threshold. But this loss of assets may reduce the standard of living for the healthy spouse at home.

So, Medicaid will allow the spouse needing care to convert his or her share of the assets into an income annuity that belongs to the healthy spouse. This legal strategy provides the healthy spouse with more income and avoids the impoverishment imposed by the Medicaid spend-down requirement. These annuities must meet strict rules imposed by Medicaid, and you should seek an expert in this area to help you. NOte that the same strategy can be used by a single person, in some states, but is more complex and restrictive.

You can also prepare for this by investing in a deferred annuity, anticipating its eventual conversion into guaranteed income for applying for Medicaid. These deferred annuities should be designed so that the money can be turned into a guaranteed income stream for either spouse of a couple (called "annuitizing" the annuity). That income stream must go to the healthy spouse–the one not requiring Medicaid assistance.

An elder care attorney must be consulted prior to using this strategy. Do not rely on representations of the insurance agent who wants to sell you an annuity.