04 Jul Success Story Of The Month: 96-year-old Gambles $ On Medicaid Planning And Wins
Although it is normally not recommended that a 96-year-old buy any type of annuity, the facts below illustrate how a 96-year-old was willing to bet his money on a plan that included the purchase of a Medicaid-compliant annuity that saved him $6000 a month for the remainder of his wife’s lifetime.
Long-term care Medicaid helps pay for skilled nursing home care if certain eligibility requirements are met. Most people wrongly assume Medicaid is only for the poor and that an applicant must be impoverished before there is eligibility for governmental assistance.
However, the government does review the countable assets and income of both the institutionalized spouse (hereinafter “IS”) and the spouse who doesn’t live in the nursing home (commonly knows as the community spouse – hereinafter “CS”). If the non-resource producing income (typically Social Security and pension income) of the couple is less than $3715.50 a month, then often more resources can be kept without spenddown under laws to prevent spousal impoverishment and there can be governmental assistance to help pay for care of the IS. This is often called expansion of the protected resource amount so the amount that can be kept by the CS can even be far greater than the maximum amount of $148,620 of countable resources (certain resources such as a home, car, pre-need funeral, etc., do not count).
However, if the non-resource producing income of the couple exceeds the $3715.50 per month threshold, then there will not be eligibility for expansion and the CS can only be entitled to ½ of the countable resources not to exceed $148,620. In cases like this, the strategy is often to change the nature of the resource from being countable (such as cash) to being non-countable.
The facts of the case are as follows: Wife, 92, is the IS and her husband, 96, is the CS. The CS is in good health (in fact, he still drives – you may have seen him on the road). IS has non-resource producing income of $1000 per month and the CS has non-resource producing income of $3000 per month. The couple has $220,000 of countable resources. As a result, there will not be Medicaid eligibility until the countable resources are below $110,000 (1/2 of the countable resources). The plan for eligibility is to shift the great majority of the cost of care burden ($7000 per month) to the government. Under the long-term care Medicaid rules, there is a certain type of immediate annuity that does not count as a resource as it becomes an immediate (paid monthly less than the life expectancy of the owner) income stream. However, if the annuitant (in this case, the CS) dies before the annuity is fully paid out, then the government is the remainder beneficiary (after the IS) to the extent government benefits (i.e., nursing home and drug costs) were paid on behalf of the IS. The 96-year-old CS was aware of this and purchased an annuity (that complies with the rules) in the amount of $180,000 to be paid out to him in equal monthly installments of a little over $15,000 a month for 1 year. The reason for purchasing more than $110,000 (1/2 of $220,000) is that the countable resources should be below $110,000 until the government approves eligibility, which often takes 3 to 4 months. So, if he purchased the annuity his countable resources were reduced from $220,000 to $40,000 ($220,000 – $180,000). If he didn’t spend any of the $15,000 for 4 months, then his countable resources would grow from $40,000 to $100,000 (4 months times $15,000 = $60,000 + $40,000) and thus the resources would still be below $110,000 even if it took the state 4 months for approval.
The 96-year-old CS is now 97, and he has received the entire annuity purchased plus a small amount of interest. But more importantly, the only amount due by the IS for her cost of care is her monthly income of $1000. The government is responsible for payment of any excess to the nursing home (although it will pay less than the private pay rate). Nonetheless, there is a savings of $6000 per month ($7000 private pay rate minus the $1000 IS co-payment). The 96-year-old gambled that he would live until he was 97. He hit the jackpot and will continue to save $6000 per month for the rest of his wife’s life. He also revised his will so that in the event he died, his assets would go into a special needs trust (which would not count as a resource for Medicaid and improve her quality of life) instead of going to her directly which would have resulted in a loss of eligibility. Simple planning resulted in big savings.
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