Search Articles

Find Attorneys

Using Annuities for Long-Term Care Planning

Insurance agents and financial institutions often advertise annuities as the perfect way to generate retirement income. While annuities can be a valuable retirement tool, if you are buying an annuity as part of a Medicaid planning strategy, you need to fully understand what you are getting. And whether an annuity makes sense as part of Medicaid planning may depend on whether you are married or single.

Historically, "immediate" annuities have been used as a Medicaid planning tool. In its simplest terms, an immediate annuity is a contract with an insurance company (or a private individual) under which the consumer pays the company a certain amount of money and the company sends the consumer a monthly check for the rest of his or her life. Purchasing an immediate annuity is a way for people with assets in excess of Medicaid's limits to turn the assets into an income stream while avoiding a penalty for transferring the assets. The Deficit Reduction Act of 2005 (DRA) changed the requirements for annuities, making it a little harder to do this. Under the DRA, an annuity must meet the following requirements in order to avoid a transfer penalty (for more information about transfer penalties, click here):

  • The annuity must be irrevocable (meaning you can't cancel it)
  • The annuity must be actuarially sound (which means the annuity cannot cover a term longer than the purchaser's life expectancy and the payments expected during the annuitant's life expectancy must at least equal the cost of the annuity)
  • The payments must begin immediately (you cannot have deferred payments or a balloon payment)
  • Unless there is a spouse or a minor or disabled child, the state must be named as the remainder beneficiary (the person or entity that gets any leftover money) up to the amount of Medicaid provided

Perhaps the best use of an annuity for Medicaid planning is for married couples, one of whom needs Medicaid-covered long-term care. An immediate annuity allows the couple to turn their excess assets into income for the Medicaid recipient's spouse. If a spouse purchases an annuity that meets the requirements under the DRA, he or she will receive the income from that annuity without having to contribute it to the Medicaid recipient's long-term care. But, as a result of a 2006 amendment to the DRA, the spouse will have to name the state as the remainder beneficiary for costs incurred by the Medicaid recipient as well as herself if she ever receives Medicaid. However, such repayment would only occur if she were to die before the guaranteed payments under the annuity had expired.

Local Elder Law Attorneys in Your City

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

Annuities generally have been less useful as Medicaid planning devices for single individuals. For example, if a single individual purchases an annuity, the interest income from the annuity counts as income and will have to be paid to the nursing home. Then, once the purchaser dies, any remaining money in the annuity will first go to the state to pay any unpaid nursing home bills. If there is any left over, it will go to beneficiaries named by the purchaser.

However, in some states immediate annuities may have a place for single individuals who are considering transferring assets. Income from an annuity can be used to help pay for long-term care during the Medicaid penalty period that results from the transfer. In such cases, the annuity is usually short-term, just long enough to cover the penalty period.

While immediate annuities can still be a powerful tool in the right circumstances, they must be distinguished from deferred annuities, which have no Medicaid planning purpose. Also keep in mind that even following the DRA, acceptance of immediate annuities for Medicaid planning varies from state to state. Be sure to consult with a qualified elder law attorney in your state before pursuing this strategy. To find a qualified elder law attorney near you, click here.

 


Created date: 08/15/2007
Medicaid 101
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
Medicaid Planning Strategies

Careful planning for potentially devastating long-term care costs can help protect your estate, whether for your spouse or for your children.

READ MORE
Estate Recovery: Can Medicaid Take My House After I’m Gone?

If steps aren't taken to protect the Medicaid recipient's house from the state’s attempts to recover benefits paid, the house may need to be sold.

READ MORE
Help Qualifying and Paying for Medicaid, Or Avoiding Nursing Home Care

There are ways to handle excess income or assets and still qualify for Medicaid long-term care, and programs that deliver care at home rather than in a nursing home.

READ MORE
Are Adult Children Responsible for Their Parents’ Care?

Most states have laws on the books making adult children responsible if their parents can't afford to take care of themselves.

READ MORE
Applying for Medicaid

Applying for Medicaid is a highly technical and complex process, and bad advice can actually make it more difficult to qualify for benefits.

READ MORE
Alternatives to Medicaid

Medicare's coverage of nursing home care is quite limited. For those who can afford it and who can qualify for coverage, long-term care insurance is the best alternative to Medicaid.

READ MORE
ElderLaw 101
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Long-Term Care Insurance

Understand the ins and outs of insurance to cover the high cost of nursing home care, including when to buy it, how much to buy, and which spouse should get the coverage.

READ MORE
Medicare

Learn who qualifies for Medicare, what the program covers, all about Medicare Advantage, and how to supplement Medicare’s coverage.

READ MORE
Retirement Planning

We explain the five phases of retirement planning, the difference between a 401(k) and an IRA, types of investments, asset diversification, the required minimum distribution rules, and more.

READ MORE
Senior Living

Find out how to choose a nursing home or assisted living facility, when to fight a discharge, the rights of nursing home residents, all about reverse mortgages, and more.

READ MORE
Social Security

Get a solid grounding in Social Security, including who is eligible, how to apply, spousal benefits, the taxation of benefits, how work affects payments, and SSDI and SSI.

READ MORE
Special Needs Planning

Learn how a special needs trust can preserve assets for a person with disabilities without jeopardizing Medicaid and SSI, and how to plan for when caregivers are gone.

READ MORE
Veterans Benefits

Explore benefits for older veterans, including the VA’s disability pension benefit, aid and attendance, and long-term care coverage for veterans and surviving spouses.

READ MORE