Senior person's hand

Medicaid Planning: Individual Gifting MCA

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.


We continue to receive a number of questions directed at our firm regarding Individual Gifting.  While it is not difficult to understand the benefits of utilizing a Medicaid Compliant Annuity (MCA) in spousal cases, individual Medicaid applicants require further explanation.


An individual’s options for Medicaid qualification may be more limited due to the differences in asset limits between spousal cases and individual cases, but one viable option that Krause Financial Services stands behind is the Individual Gifting/MCA plan.  Some may know this as the “Half-a-Loaf” plan.


The Individual Gifting/MCA plan consists of two main components – gifting a portion of the applicant’s spend-down amount to his or her intended beneficiaries and using the remaining portion to purchase the MCA.  Generally, the numbers often come out to be about half and half.  Krause Financial Services uses a unique formula to determine the amount that should be gifted and the MCA single premium amount, all based upon the applicant’s resources, income, and cost of care.


In utilizing this type of planning, we are able to save the most assets possible for a single applicant’s family, while complying with the regulations regarding gifting, penalty periods, and annuities as outlined in the Deficit Reduction Act of 2005.  To understand how the Individual Gifting/MCA plan works and how it can benefit your clients, let’s walk through an example.




Harold, 86 years of age, is a single resident of West Allis, Wisconsin.  He permanently resides in a nursing home.  Harold has $170,000 of countable resources and receives $1,600 per month from Social Security.  He wants to save as much of these assets as he can for his children and their future, but is afraid he cannot qualify for Wisconsin Medicaid benefits.


Under Wisconsin Medicaid rules, Harold can keep up to $2,000 of countable resources.   However, in order to avoid the edge of Medicaid eligibility, Harold should only retain $1,800 of countable resources, and therefore, has a spend-down amount of about $168,200.  With his income being $1,600, and his cost of care being $8,000 per month, Harold has an income shortfall of $6,400.


Financial Calculations


When utilizing an Individual Gifting/MCA Plan, the state’s penalty divisor must be determined for uncompensated transfers.  In this case, the Wisconsin Monthly Divestment Penalty Divisor is $7,694.  Adding the penalty divisor of $7,694 to Harold’s monthly income shortfall of $6,400, the total amount equals $14,094.  This is referred to as the burn rate, or the amount of cash Harold will “burn” through in one month of his plan.  When we divide the burn rate of $14,094 into the spend-down amount of $168,200, the resulting figure equals the term of the plan, in this case, 11.93 months.  In Harold’s case, and to avoid the edge of Medicaid eligibility, we will increase the resulting figure to an annuity term of 12 months.


The Gift


The gift is the amount of cash or other countable resources that will be divested to Harold’s intended beneficiaries.  To determine the gift amount, multiply the term of the annuity, 12 months, by the Wisconsin Monthly Divestment Penalty Divisor, $7,694, for a total gift amount of $92,328.  This is the amount Harold will give to his intended beneficiaries.


The Individual Gifting MCA


With the spend-down amount $168,200 now being reduced by the gift amount of $92,328, the MCA single premium amount equals the difference, or $75,872.  The annuity is structured over 12 months with equal monthly payments of $6,360.60, and the total payout will equal $76,327.20.


At this point, Harold’s total assets equal $1,800, and, aside from the divestment to his intended beneficiaries, Harold is deemed “otherwise eligible” to receive Medicaid benefits.


Economic Results


By gifting $92,328 to his children, Harold is ineligible to receive Medicaid benefits for almost 12 months.  Over the course of those 12 months, Harold will use the income from his MCA of $6,360.60 and his income from Social Security of $1,600, total income being $7,960.60, to pay for his monthly cost of care until his penalty period is over.


With the monthly cost of care being $8,000, less Harold’s income of $7,960.60, the monthly income shortfall equals the difference, or $39.40 per month, equaling $472.80 over the entire term of the MCA.  As Harold has retained $1,800 in assets, Harold is able to cover the income shortfall over the next 12 months.


Points to Consider

  • By choosing to proceed with the Individual Gifting/MCA plan, Harold’s intended beneficiaries will receive a wealth transfer of $92,328. This amount is over 50% of the spend-down amount of $168,200.
  • Immediately following the 12-month divestment period, Harold will be eligible for Medicaid benefits, and his monthly Medicaid co-pay will be only $1,555 (Harold’s Social Security income of $1,600 less his monthly personal needs allowance of $45).
  • With Harold currently paying $8,000 per month for his nursing home care, by qualifying for Medicaid benefits, and his co-pay being $1,555, Harold will experience a monthly savings of $6,445.
  • Had Harold chosen not to move forward with the Gifting/MCA plan, and continued to pay privately for his nursing home care, he would have exhausted his entire spend-down in approximately 21 months.
  • In the event Harold was to pass away prior to the end of the penalty period, the State of Wisconsin would not be entitled to any of the residual benefits remaining in the MCA as Harold had not received any medical assistance during that time, and instead, his intended beneficiaries would receive any remaining benefits.


By utilizing the Individual Gifting/MCA plan through Krause Financial Services, Harold will be able save $92,328 for his children while also qualifying for Medicaid benefits.


Rather than exhaust a client’s resources, choose a method that has the best financial result given the circumstances.  With the Individual Gifting/MCA plan, you can save your clients the most assets possible, put them on the defined path toward Medicaid eligibility, and give your clients, and their families, the security and peace of mind of knowing that they are no longer in crisis.  Contact our office today and we will help you get started.


Sign In to Comment on this Article