The purchase of certain immediate annuities is not considered a transfer of assets by Medicaid. Buying these annuities can be a way to protect assets for the spouse of a nursing home resident, and sometimes for his heirs.

An immediate annuity is a contract with an insurance company under which the annuitant pays over a certain amount of principal in exchange for the insurance company’s commitment to pay out an income stream either for a specific number of years or for life. For instance, the annuitant may pay an insurance company $100,000 and receive back $21,000 a year for five years.

Under the Medicaid rules, if one spouse moves to a nursing home, he may become eligible when his and his healthy spouse’s assets have been spent down to a certain level. Qualified Medicaid annuities can be part of this spend down by transforming countable assets into income, which for the healthy (or “community”) spouse is unlimited.

The annuities must meet certain parameters, and each state treats them somewhat differently. In certain instances, also depending on the state, annuities can also be useful tools for single nursing home residents. For these reasons, it’s important that anyone considering this tool consult with a local elder law attorney first.

For more on annuities and  Medicaid planning, click here.