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Using Medicaid Compliant Annuities to Protect Your Assets From the Nursing Home

Medicaid is the most common way for people to afford the costs of long-term care. However, in order to qualify for Medicaid, Florida residents can only have a small amount of assets and income, such as personal belongings, a primary home, and one vehicle. If one spouse needs long-term care, but the other spouse Elderly Man Getting Assistance With a Walkerdoesn’t, the healthy spouse could lose their life savings to pay for their partner’s nursing home costs.

Fortunately, there are ways to ensure that a healthy spouse doesn’t sacrifice all of their possessions in order to keep Medicaid benefits. One asset preservation planning tool is a Medicaid annuity, which allows the well spouse to receive a source of income while Medicaid provides long-term care for the other spouse.

What Are Medicaid Compliant Annuities?

If you are the healthy spouse, you can use assets over the Medicaid limit to purchase term-limited annuities, transforming those assets into income. Medicaid compliant annuities give fixed monthly payments to the well spouse, supplementing their income or Social Security benefits.

As the well spouse, you would be the annuity owner and payee. If your partner passes away before you do, your annuity payments will continue until the end of the term. If you pass away first, the remaining annuity funds are used to pay back Medicaid.

Since the funds in a properly-created annuity can only go to the well spouse or the Florida Medicaid agency, those funds are considered exempt from Medicaid’s asset criteria. However, annuity payments are still counted as income if the healthy spouse later needs nursing home care.

What Makes an Annuity Medicaid Compliant?

There are many different kinds of annuities, and not all of them meet Medicaid’s strict requirements. The rules of Medicaid annuities must be followed carefully to avoid losing the funds to the nursing home, so you should speak to our Florida elder law legal team before purchasing a Medicaid-compliant annuity.

In general, an annuity might qualify as Medicaid compliant as long as it is:

  • Non-assignable. In order to be compliant, the annuity must have no cash value (in other words, it’s worthless to anyone but you and the Medicaid beneficiary). The annuity policy must be in your name and cannot be sold or transferred to a third party.
  • Irrevocable. Both you and your spouse must give up the right to withdraw funds out of the annuity except through the regular payments.
  • Shorter than your life expectancy. If your annuity has a term limit, it must be within your life expectancy.
  • Paid in equal installments. Annuity payments must be the same amount each month, with no deferrals or bonus payments. For instance, if you pay $50,000 for a 10-year annuity, you must receive payments of at least $416.67 a month ($416.67 x 12 x 10 = $50,000).
  • Contracted to the Florida Medicaid agency. You must list the Florida Medicaid agency as the primary beneficiary of the annuity upon the death of the Medicaid recipient. In particular, the annuity contract must specify that the State of Florida would be repaid out of the annuity for costs of care funded by Medicaid if the annuity holder dies.
  • Used for the well spouse’s care. If you require nursing home care in the future, your annuity income must be used to pay for it.

Medicaid annuities can only be used in a married couple situation, when one spouse needs Medicaid and the other spouse is at home. 

Unfortunately, there is no such thing as an easy Medicaid application. The process is long, complicated, and the laws are always changing. The right elder law attorney will not just help you fill in an application, but will answer your questions and dig into estate planning and life care planning so that you have a clear road map for the future.

At DeLoach, Hofstra & Cavonis, our goal is to help your family through the most difficult times in their lives. Our elder law team can walk you through the Medicaid process, protect your life savings, and ensure that your loved one is able to get the best of care. Simply fill out our quick contact form or call us at (727) 777-6842 to set up a consultation, or learn more in our free book, Protect Your Nest Egg From The Nursing Home: Your Florida Survival Guide.