Medicaid eligibility not guaranteed by annuity purchase
Question: The term “Medicaid Annuity” was discussed at a seminar I recently attended. I was initially interested in purchasing an annuity for income. However it piqued my interest when the presenter said buying an annuity could also make me eligible for long-term care Medicaid benefits, because I can’t qualify for long-term care insurance. Buying an annuity sounds like a solution almost too good to be true, so I’m asking you if it is. I am divorced, 64, and I would buy an annuity only if I knew I could leave any unused annuity funds to my daughter.
Answer: It’s always good to be skeptical when something sounds too good to be true. In this case, your instincts are on target.
If your primary concern is to guarantee an income flow for your lifetime, the annuity may be a totally appropriate investment. But from a Medicaid planning perspective, it is not a magic bullet. Here’s why: To be eligible for long-term care Medicaid benefits, you may retain no more than $2,000 in available assets. An annuity will be considered an available asset if you apply for benefits, unless you annuitize it into an actuarially sound income stream. Once annuitized, it is considered income (even though all of it is not taxable as a return of principal). That income — just like any other income, such as Social Security or a pension — would then be deemed part of your patient responsibility. In other words, that income would have to go to the nursing home to be applied toward the cost of your care. Medicaid would cover the portion of the monthly nursing home bill that remains after your patient responsibility is applied.
Upon your passing, the State of Florida must be repaid for its expenditures on your behalf if any annuity proceeds remain. After the state takes its cut, any remaining funds could go to your daughter.
Alternative methods are available that may be able to preserve assets. Please be sure to discuss your situation and goals with a board certified elder law attorney.
Joseph Karp, a member of the Florida and New York Bars, is a Nationally and Florida Bar Certified Elder Law Attorney and founder of The Karp Law Firm, located in Palm Beach and St. Lucie counties. The firm assists clients with wills, trusts, Medicaid and VA benefits planning, asset preservation, probate/trust administration and estate litigation.