According to the AARP, just over half (52%) of the people in the U.S. who reach age 65 will need long-term care in their lifetime. And, with nursing home care costing about $12,000 a month, a stay in a nursing home can quickly drain the resources of even the most careful planner.
If you have researched how to qualify for Medicaid, you have learned about the five-year lookback period. The five-year lookback means that if you gift assets in the five years prior to applying for Medicaid, your ability to collect Medicaid can be delayed. So what’s a family to do if a senior has a sudden incapacitating illness such as a stroke or heart attack? How do you get help paying for nursing home care without running afoul of the law?
Fortunately, there are some ways to transfer assets that do not negatively impact Medicaid eligibility. One of those is purchasing a Single Premium Immediate Annuity for the spouse living at home (aka the community spouse). Properly structured, this annuity functions as a spend-down tool that eliminates excess countable assets, allowing the nursing home resident to become eligible for Medicaid benefits. Single premium means that the annuity is funded with one lump sum paid into it. Immediate means that payments from the annuity start immediately as opposed to some point in the future. To assure that the annuity doesn’t count as a transfer of assets, the Single Premium Immediate Annuity must be irrevocable (you can’t change your mind) and non-assignable (you can’t transfer it to anyone).
The Single Premium Immediate Annuity must be actuarially sound which means that the term of the annuity must be less than the life expectancy of the community spouse and the payments must at least equal the cost of the annuity. The annuity payments cannot exceed the life expectancy of the spouse based on Social Security tables. Single Premium Immediate Annuities cannot have balloon payments and the State must be named primary beneficiary with a child or other loved one as successor beneficiary. Additionally, a Single Premium Immediate Annuity is purchased after the date of institutionalization (DOI) but before applying for Medicaid. The date of institutionalization is the date that the spouse entering the nursing home was admitted to a hospital or nursing home for a 30-day period.
Example of How a Single Premium Immediate Annuity Protects Your Assets
Jim (age 80) and Sarah (age 76) have been married for over 50 years when Jim has a stroke. He survives but needs to be cared for around the clock. Sarah can’t take care of him so they reluctantly decide he needs to go into a nursing home.
Jim and Sarah have done their best to plan for retirement. At the time of the stroke, Jim has $2,000 monthly income and Sarah has $1,500 monthly income. They have a house and a car that are paid off and $250,000 in investments.
Jim’s nursing home costs $12,000 per month. Since the value of Jim and Sarah’s assets exceed the maximum to qualify for Medicaid, they will need to reduce their countable assets to become eligible.
The first thing they need to do is figure out how much in assets Sarah can keep and how much they need to put into investments that are Medicaid compliant. The Community Spouse Protected Amount (CSPA) is the amount of assets Sarah can keep and enable Jim to be eligible for Medicaid. The maximum CSPA in 2019 is $126,420 and Jim can keep $1,600 for a total of $128,020. Thus, Jim and Sarah are $121,980 over assets ($250,000 - $128,020 = $121,980).
After Jim goes into the nursing home and before applying for Title 19, Sarah purchases a Single Premium Immediate Annuity for $120,000 and they spend down the additional $1,980 on a prepaid funeral contract. They name the State as primary beneficiary and their two children as successor beneficiaries.
Jim and Sarah apply for Title 19 after purchasing the Single Premium Immediate Annuity and disclose the annuity on their application. The Connecticut Dept. of Social Services (DSS) sends notice that they must name the state as beneficiary.
Now we need to figure out the payment structure of the annuity. Sarah’s life expectancy is 12.17 years (or 146 months). Sarah could pick a term of 146 months and get an annuity that pays $900 a month or Sarah could pick a term of 60 months and get an annuity that pays $2,500/mo. If Sarah dies before the annuity term ends, the State of Connecticut will receive the remaining value of the annuity for the medical assistance paid for Jim. They pick the term of 60 months because they want to assure that Sarah outlives the term of the annuity. By choosing 60 months, Sarah will receive more income.
In the end, Sarah gets to keep the house, the car, her $1500/month of income and $2,500/month of annuity income. Jim pays his monthly applied income to the nursing home $2,000 - $60 personal allowance = $1,940. In the end, Jim pays $1940 a month towards his care and the State pays for the rest of his care at the Medicaid rate the state pays nursing homes. If Jim stays in the nursing home for 2 years, Jim and Sarah will have received a public benefit from the state that is worth $241,440 ($10,060 x 24 months = $241,440) to them. Thus, a Single Premium Immediate Annuity can provide a substantial benefit to Jim & Sarah.
If you think that a Single Premium Immediate Annuity would help your family, give the elder law attorneys at Cipparone & Zaccaro, PC a call.
