Medicaid Compliant Annuity Planning for an Individual
On the assumption that an individual purchases a Medicaid Compliant Annuity and is required to name the state Medicaid program as the primary beneficiary to the extent of medical assistance benefits received by the annuitant/institutionalized individual, it is likely that any residual benefits remaining in the Medicaid Compliant Annuity will escheat to the state Medicaid program. As such, in order to provide a Medicaid planning opportunity to the individual in a crisis Medicaid planning situation, the better approach may be to implement a Gifting/Short-Term Medicaid Compliant Annuity plan ("the plan"). To help you better understand the plan, I have provided the following example:
Fact Pattern:
Assume that Ms. Smith, a widow, is a resident of a Florida nursing home. Further, assume that Ms. Smith's nursing home care is costing $6,000.00 per month, her monthly income is $1,800.00 from social security and pension, and her spend-dow amount is $100,000.00.
Financial Analysis:
With Ms. Smith paying $6,000.00 per month for her nursing home care, and with her monthly income being only $1,800.00, her monthly income shortfall is $4,200.00. With the monthly income shortfall amount then being added to the Florida monthly divestment penalty divisor of $5,000.00 (for 2008), the total burn rate amount equals $9,200.00. With this amount being then divided into the spend-down amount of $100,000.00, the resulting figure is 10.87.
Gift Amount:
With the resulting figure being 10.87 months, multiplied by the monthly divestment penalty divisor of $5,000.00, the immediate gift amount equals $54,350.00.
Short-Term Medicaid Compliant Annuity:
With the spend-down amount of $100,000.00 being reduced by the immediate gift amount of $54,350.00, the Short-Term Medicaid Compliant Annuity amount equals the difference, or $45,650.00. Utilizing a Medicaid Compliant Annuity, structured with a period certain term of 11 months, the Medicaid Compliant Annuity will pay Ms. Smith $4,160.00 per month, for a total payout of $45,760.00.
Financial Results:
With Ms. Smith implementing the aforementioned plan, she would be ineligible for Medicaid benefits until the end of the 10.87 month divestment penalty period. Additionally, during the same period, Ms. Smith would have total monthly income of $5,960.00, which amount is available to pay the monthly nursing home costs. With the nursing home charging $6,000.00 per month, and with Ms. Smith having monthly income of only $5,960.00, Ms. Smith would have a monthly income short-fall of $40.00.
Monthly Income Shortfall Responsibility:
With Ms. Smith having a resource limit of $2,000.00, she would be able to reasonably pay the monthly income shortfall amount.
Compliance with the Deficit Reduction Act of 2005:
With Ms. Smiths' Medicaid Compliant Annuity being irrevocable, non-assignable, structured with an actuarially sound payout, with equal payments, and respectively names the State of Florida - Medicaid Program as the primary beneficiary, Ms. Smith's annuity meets the requirements of the Deficit Reduction Act of 2005 and HCFA Transmittal 64.
Please click here to obtain a Medicaid Compliant Annuity Planning Questionnaire for an individual.
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