Medicaid Compliant Annuity Planning for an Individual
With almost every state having passed the legislation associated with the Deficit Reduction Act of 2005 ("DRA"), and with Krause Financial Services having significant experience within many post-DRA states, it is clear that a Gifting/Medicaid Compliant Annuity plan, commonly referred to as a Half-a-Loaf plan, is still a viable planning strategy for an individual nursing home resident who wants to qualify for Medicaid benefits.
The goal of a Gifting/Medicaid Compliant Annuity plan is to allow the nursing home resident to give away approximately one-half of his or her spend-down amount while retaining the other half to pay for his or her nursing home care. As such, in order to provide a Medicaid planning opportunity to the individual in a post-DRA crisis Medicaid planning situation, the better approach may be to implement a Gifting/Medicaid Compliant Annuity plan ("the plan"). To help you better understand the plan, the following example is provided:
Fact Pattern
Assume that Ms. Stevens, a widow, is a resident of a Florida nursing home. Further, assume that Ms. Stevens' nursing home care is $6,000 per month, her monthly income is $1,800 from social security and pension, and her spend-down amount is $100,000.
Financial Analysis
With Ms. Stevens paying $6,000 per month for her nursing home care, and with her monthly income being only $1,800, her monthly income shortfall is $4,200. With the monthly income shortfall amount then being added to the Florida monthly divestment penalty divisor of $5,000, the total burn rate amount equals $9,200. With this amount being then divided into the spend-down amount of $100,000, 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, the immediate gift amount equals $54,350.
Medicaid Compliant Annuity
With the spend-down amount of $100,000 being reduced by the immediate gift amount of $54,350, the Medicaid Compliant Annuity amount equals the difference, or $45,650. Utilizing a Medicaid Compliant Annuity structured with a period certain term of 11 months, the Medicaid Compliant Annuity will pay Ms. Stevens $4,160 per month, for a total payout of $45,760.
Financial Results
With Ms. Stevens 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. Stevens would have total monthly income of $5,960, an amount which is available to pay the monthly nursing home costs. With the nursing home charging $6,000 per month, and with Ms. Stevens having monthly income of only $5,960, Ms. Stevens would have a monthly income shortfall of $40.
Monthly Income Shortfall Responsibility
With Ms. Stevens having a resource limit of $2,000, she would be able to reasonably pay the monthly income shortfall amount.
Compliance with the Deficit Reduction Act of 2005
With Ms. Stevens' Medicaid Compliant Annuity being irrevocable, non-assignable, structured with an actuarially sound payout, providing equal monthly payments, and naming the State of Florida - Medicaid Program as the primary beneficiary, Ms. Stevens' annuity meets the requirements of DRA and HCFA Transmittal 64.
Interesting Points
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Had Ms. Stevens decided not to proceed with the Gifting/Medicaid Compliant Annuity Plan, and continued privately paying for her nursing home care, she would have exhausted all of her spend-down amount in approximately 23 months.
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By opting to proceed with the Gifting/Medicaid Compliant Annuity Plan, Ms. Stevens' intended beneficiaries will receive a wealth transfer of $54,350. This amount is more than 50% of the $100,000 spend-down amount.
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Finally, in the event that Ms. Stevens was to predecease the 10.87-month divestment penalty period, the State of Florida - Department of Children and Families would not be entitled to the residual benefits remaining in the 11-month Medicaid Compliant Annuity in that the Department did not provide any medical assistance benefits to Ms. Stevens. As such, Ms. Stevens' intended beneficiaries would be entitled to receive any residual benefits remaining in the Medicaid Compliant Annuity.
