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Almost four years have passed since President Bush signed the Deficit Reduction Act of 2005 ("DRA") into law.  Forty-eight states have since passed the legislation, yet many elder law attorneys are not aware of an immense planning opportunity that still exists.

When DRA was signed into law in 2006, it was clear that some annuities required the state Medicaid program to be named as the beneficiary.  If that was the case, the beneficiary designation was only to the extent that Medicaid benefits were provided to the annuitant.  In a community spouse case, the loophole was obvious in that the community spouse was the annuitant and had never received Medicaid benefits.  Thus, no recovery.  Even though the aforementioned loophole was later closed by the Tax Relief and Health Care Act of 2006, several states did not adopt the legislation.  Thus, the loophole still exists in the following states:

1. Alabama
2. Alaska
3. Hawaii
4. Idaho
5. Indiana
6. Iowa
7. Kentucky
8. North Dakota
9. South Dakota
10. Tennessee

To illustrate, assume that the Smiths reside in Indiana.  Mr. Smith, after years of battling bad knees and hips, permanently entered an Indianapolis nursing home for custodial care.  At a private pay cost of $5,000.00 per month, the Smiths realized that their $300,000.00 life savings would not last very long.  Instead of continuing to privately pay until their savings was exhausted, Mrs. Smith, who is age 85 and had a Medicaid life expectancy of 6.54 years / 78.48 months, purchased a Medicaid Compliant Annuity with $200,000.00.  The Medicaid Compliant Annuity provided her with $2,649.01 per month for 78 consecutive months.  Following the purchase, Mr. Smith was immediately eligible for Indiana Medicaid benefits.  His monthly co-pay to the nursing home consisted of his monthly income of $1,200.00 from social security and pension less his $52.00 monthly personal needs allowance, for a monthly co-pay of $1,148.00.

As a result of qualifying for Medicaid benefits, the Smiths immediately saved $3,852.00 per month, and no longer worried about losing their life savings.  Finally, in the event that Mrs. Smith was to predecease the term of her Medicaid Compliant Annuity, the State of Indiana - Family and Social Services Administration would not have the right to recovery against the remaining monthly payments, in that Mrs. Smith, the annuitant, never received Medicaid benefits.  Instead, the remaining balance will go to the contingent beneficiaries, the Smith children.