One of the most effective tools to protect the assets of married couples is the use of a Medicaid qualifying annuity. Typically, when a person enters a nursing home, his assets need to be depleted to a certain monetary level. In West Virginia, this amount is $2,000. In Ohio, this amount if $1,500. In addition, the community spouse, i.e. the one not going into the nursing home, also has limits on how much of their assets can be retained. As a general rule the community spouse is entitled to keep half of the assets, but no more than $113,640. Such rules can have a devastating effect on the savings of a married couple.
However, through the use of a Medicaid qualifying annuity, a married couple can protect all of their assets when one spouse enters a nursing home. The Deficit Reduction Act of 2005 eliminated many of the planning tools that elder law attorneys were using to protect the assets of their clients. Nevertheless, the act permitted elder law attorneys to continue to use annuities to protect their client's assets.
In order for an annuity to be considered compliant, it must meet the following requirements:
1. It must be irrevocable and non-assignable.
2. It must be actuarially sound.
3. It must provide for payments in equal amounts with no deferral and no balloon payments.
4. In general, it must name the state Medicaid program as the primary beneficiary to the extent that medical assistance benefits were provided to the institutionalized spouse (however, there are certain exceptions that apply).
Let's look at an example of how this may work.
Assume that a husband and wife have $250,000 of assets. The husband, the institutionalized spouse, is deemed to be an owner of half of these assets, or $125,000. His share of the assets have to be spent down to below $2,000. As mentioned, there is even a cap on how much the wife can keep. As a general rule, she can keep half of the assets; however, to the extent that her share of the assets exceeds $113,640, she also is required to spend down the assets.
Thus, approximately $140,000 of the combined couple's assets have to be depleted. To avoid this depletion for long-term care expenses the couple can purchase a Medicaid qualifying annuity for the benefit of the community spouse, i.e. the wife. If this is done properly, it can result in the husband immediately becoming eligible for Medicaid without a penny of his savings going towards his long-term care.
As you can see, the use of a Medicaid qualifying annuity is an extremely effective tool for asset protection. It is important to note that the annuity does not have to be purchased more than five years prior to the husband going into the nursing home. In fact, in most cases, this is a planning tool that is not used until a spouse goes into the nursing home.
Finally, each state's rules differ on the treatment of Medicaid qualifying annuities. This makes it very important that before any steps are taken to implement the use of a Medicaid qualifying annuity, you have a consultation with a qualified elder law attorney.
If you would like to submit a question for publication, email it to firstname.lastname@example.org. Jeffrey J. Rokisky is an elder law attorney with offices in Wheeling, Weirton, Elkins, Clarksburg and Robinson Township.