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The Logistics of a Medicaid Compliant Annuity
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The Logistics of a Medicaid Compliant Annuity
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Using Medicaid Compliant Annuities in the Name of the Community Spouse

In episode 11 of our Industry Insights video series, Alisa Lamal, Benefits Planner, discusses using a Medicaid Compliant Annuity for a married couple in the name of the community spouse.

Alisa outlines the logistics and considerations behind this strategy by taking a closer look at asset transfers between spouses, income shifts to meet the Monthly Maintenance Needs Allowance (MMNA), and what happens if the community spouse predeceases the terms of the annuity.

Amy: Hi, I’m Amy Beacham, Communications Director for Krause Financial Services. Welcome to Industry Insights. In this series, we discuss news, updates, and hot discussion topics that affect the elder law space and that are relevant to you as an elder law attorney. Working on hundreds of cases per month and working with attorneys from across the country, we see trends that affect this area of planning, and we want to share some of those insights with you today. Today, we have one of our Benefits Planners, Alisa Lamal, here to discuss some of our most commonly asked questions related to using a Medicaid Complaint Annuity for a married couple. In particular, Alisa is going to shed some light on the logistics of using a Medicaid Compliant Annuity in the name of the community spouse. Welcome, Alisa.

Alisa: Thank you for having me, Amy.

Amy: So, to start off, can you tell us what a typical Medicaid Compliant Annuity plan for a married couple looks like?

Alisa: Of course. So, typically when we see a married couple contact our office looking to purchase a Medicaid Compliant Annuity, we see the annuity structure with the community spouse as the owner of the policy.

Amy: And is there a reason that it wouldn’t be structured in the name of the institutionalized spouse?

Alisa: Yeah, so the income that the institutionalized spouse would receive from the Medicaid Compliant Annuity if they were listed as the owner would then be used toward their monthly co-pay at the nursing home each month. So essentially, we’re taking away extra income that the community spouse could receive and giving that to the nursing home.

Amy: Okay. And then, a timeline as far as that goes–when is the Medicaid Compliant Annuity purchased?

Alisa: So, we recommend purchasing the Medicaid Compliant Annuity as part of the spend-down. So, this is going to be purchased prior to submitting the Medicaid application but after that snapshot date has been established.

Amy: And when is the snapshot date established?

Alisa: So, some states treat the snapshot as just a standard figure. Other states use a minimum/maximum figure. But the snapshot date determines the Community Spouse Resource Allowance. And then, based on that amount, it determines the excess resources that need to be spent down.

Amy: And what if those assets are in the name of the institutionalized spouse?

Alisa: A transfer of assets between spouses does not incur a transfer penalty. So, prior to the institutionalized spouse attaining Medicaid eligibility, they can transfer assets between each other as many times as they need to.

Amy: Okay. Now, you mentioned that the reason we wouldn’t structure the annuity in the name of the institutionalized spouse is because that income is going to go toward that Medicaid co-pay. So, the income for the annuity then for the community spouse… how does that affect the case?

Alisa: Absolutely. So, our office’s understanding is that the income that the community spouse receives, once the institutionalized spouse has obtained eligibility, is not a consideration. So, the community spouse does not have a limit on the amount of income that they can receive each month. So, the income generated from the Medicaid Compliant Annuity as well as their own regularly received income can be used toward their monthly needs, their monthly expenses, whatever they need to sustain themselves at home.

Amy: So, I know we get a lot of questions on the Monthly Maintenance Needs Allowance. Can you explain what that is? And then, how does a Medicaid Compliant Annuity income affect that?

Alisa: Sure. So, the Monthly Maintenance Needs Allowance, or the MMNA–this is a figure that, like the Community Spouse Resource Allowance, some states treat as a standard figure. Other states treat it as a range. So essentially, they look at the income that the community spouse receives on their own, and if that income does not meet a minimum amount, they are entitled to an income shift from the institutionalized spouse’s income–dollar for dollar up until they reach that amount. So, the institutionalized spouse’s income then gets reverted to the community spouse, and they can then reach that minimum amount. Now, one consideration when doing these annuities is that the income generated from the Medicaid Compliant Annuity would then be used for the community spouse as well. So, in some instances, it’s possible that the income generated from the annuity would allow them to longer receive that income shift.

Amy: Okay. Is it possible once the annuity term ends and that income is no longer a factor that they could be eligible for the shift at that time?

Alisa: Absolutely. Once the annuity is done paying out, they’re no longer receiving that portion of income. They could then be eligible for an income shift at that time.

Amy: Okay. Now, you mentioned that the community spouse can have unlimited income and it’s okay if their income is above the MMNA. If they receive large amounts of income each month from this annuity, how does that affect the eligibility of the institutionalized spouse if the community spouse just continues to accumulate that income and their resources increase?

Alisa: Yeah, so, once eligibility has been determined for the institutionalized spouse, the resources of the community spouse are no longer considered a resource to the institutionalized spouse. So, they’re able to keep the income they’re receiving from this Medicaid Compliant Annuity. They don’t need to spend it down each month. And they can also build their assets back up for their own care.

Amy: Okay. And what happens if the community spouse predeceases the annuity term?

Alisa: So, most commonly, the state Medicaid agency is listed as the primary beneficiary of the community spouse’s annuity. In some states, it may be the institutionalized spouse that can be listed as the primary beneficiary. But most commonly, we see the state Medicaid agency. At that time, upon the death of the community spouse or the annuitant, the state Medicaid agency could have a claim to any funds remaining in the annuity up to the amount of benefits they paid on behalf of the institutionalized spouse. Some states will make that claim right away, and they will request those funds. Other states may leave that claim open until the institutionalized spouse has passed away.

Amy: Okay. So, it sounds like there’s a lot of flexibility in choosing a term, and, what we discussed so far, there are a lot of pros and cons to either going long or going short. Do you have any other insight you can share with us on how to choose an appropriate annuity term?

Alisa: Sure. Absolutely. So, there are a handful of considerations we think about when we structure these Medicaid Complaint Annuities based on what’s best for the community spouse. One consideration we might look at is whether the annuity is being funded with non-qualified or tax-qualified funds. If we’re funding the annuity with tax-qualified funds, we might want to stretch it out a little bit longer just to make sure that we are stretching out that tax implication over multiple tax years. If the health of the community spouse is a little bit questionable or we’re concerned that our community spouse might need nursing home care in the near future for themselves, we might want to structure the annuity a little bit shorter just to make sure that that annuity is done paying back to the community spouse as quickly as it can.

Amy: Okay. And it’s my understanding as well that if attorneys have questions on any of this stuff, we can certainly take a look at their case facts and make a recommendation for them.

Alisa: Absolutely. I’d be happy to.

Amy: Okay, great. Well, thank you very much, Alisa. For more information on this Medicaid Compliant Annuity strategy and more, head to the Attorney Access dashboard on our website, where you’ll get access to the latest content from our office, including more videos, webinars, articles, and news. And of course, you can always contact our office at 855-552-5893 to speak with Alisa and our team of Benefits Planners. Thanks for watching.


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