Annuities are different. They are not stocks or bonds. They are not certificates of deposit. They do not get a step-up in basis at death like other investments do. They are sold through insurance companies. Buyers of annuities are often faced with stiff surrender charges when they try to get all or some of their money out of their annuity.
Annuities have their own set of rules when it comes to qualifying for Louisiana Long Term Care Medicaid when the applicant owns an annuity. The following is an analyses of four different scenarios when it comes to someone owning an annuity and wanting to protect their assets from losing it all to Medicaid.
- Deferred Annuities. Deferred annuities have no Medicaid planning purpose. Example: Dad has $63,000 in his savings account and $1,000 in his checking account. Dad has been admitted to the nursing home, and his family wants to protect the assets and qualify for Medicaid. Dad uses the $63,000 and purchases a $63,000 deferred annuity. Dad then applies for Medicaid because he has less than $2,000 in his bank account. Dad is denied Medicaid eligibility because he owns the deferred annuity. The result will be that Dad has to surrender the annuity and pay significant surrender charges, and then spend all of the money he received from the annuity. Then, after he spends all of these funds would he be eligible for Medicaid.
- Single Person with Immediate Annuity. Luke has $101,000 of savings and is about to enter a nursing home. He spends $100,000 and purchases an immediate annuity which pays Luke $1,000 per month for his lifetime. Since Luke purchased this lifetime income stream, he no longer has access to the $100,000. Luke then applies for Medicaid because he has less than $2,000 of Countable Resources. Luke may qualify for Medicaid, but he must assign all of his income to the nursing home, so Luke's $1,000 monthly income will go straight to the nursing home. Neither Luke nor his family will get any benefit from Luke owning an immediate annuity.
- Married Couple with Immediate Annuity and Both Spouses in the Nursing Home. Same result at #2, above. A married couple, if they are both in the nursing home and qualify for Medicaid since their combined assets are less than $3,000, must assign all of their income to the nursing home. No benefit from this couple owning an annuity.
- Married Couple with Immediate Annuity and Only One Spouse in the Nursing Home. This is where it gets tricky. Some annuity salesman attempt to sell an immediate annuity to the healthy spouse when the other spouse is in the nursing home in an attempt to reduce their Countable Resources. Example: Mom is in nursing home. Dad stays in their residence. Mom and Dad have $215,000 of Countable Resources. The annuity salesman sells Dad an immediate annuity for $100,000 in an attempt to reduce Mom and Dad's assets below the Community Spouse Resource Allowance. Now, Mom and Dad, perhaps, have $115,000 of Countable Resources and Dad has a monthly income stream. While Mom may qualify for Medicaid, the Louisiana Medicaid Manual provides that, "An annuity must name the State as the remainder beneficiary in the first position for the total amount of Medicaid assistance paid on behalf of the institutionalized individual... If the state is not named as a remainder beneficiary in the correct position, the purchase of the annuity will be considered a transfer for less than fair market value."
Be very careful before considering purchasing an annuity with the intent on having a family member qualify for Long Term Care Medicaid. Due to the lack of access to funds that you have after purchasing an annuity, you could find yourself worse off than if you had simply kept your money in your bank account. Most effective Medicaid Planning is done while people are healthy. Be real careful of what an annuity salesman promises when they are attempting to get you to write a check for six figures while they promise you Medicaid eligibility.