Elder Law Update – March 2008 (Financial Advisors Edition)

 

“How to Use Medicaid Qualified Annuities in Medicaid Eligibility Planning

and

How to Serve Your Clients Even in the ‘Decumulation’ Phase of Their Lives


As you have no doubt read in our recent Elder Law Updates, the Deficit Reduction Act of 2005 (“DRA”) has substantially changed the elder law area so thoroughly that some lawyers have left the field. Not us.

Certainly the changing laws in the area of Medicaid Eligibility and healthcare in general have created certain inconsistencies and lack of understanding. There are however still many reliable tools that are being relied on by elder law and Medicaid attorneys that are actively representing the elderly and disabled persons. At our office we remain absolutely optimistic that our practices and strategies will continue to preserve our clients’ dignity while still protecting assets.

New Rules

One of the major changes brought in by DRA was change in the law that deals with what we call uncompensated asset transfers and gifting. Under the old rules, pre February 8, 2006, if someone made a gift there was a penalty for Medicaid qualification purposes, but the penalty started at the time the gift was made. However, if that gift was made after February 8, 2006, a whole new set of rules apply under the DRA. The new rules state that if the gift is made, you still have the same penalty period, however, the penalty period does not begin to run from the time the gift was made. Rather, the penalty period starts when the person is in the nursing home and spent down to minimal assets for Medicaid eligibility purposes. This stretches out your ineligibility for a longer period of time.

Example Using Annuities

Let’s discuss how a Medicaid qualified annuity might work when faced with these rules. For example, let’s assume we have a married couple, Mr. and Mrs. Example, with approximate assets of $204,000, comprised of CDs and other investments. In addition, they also have a home. Mr. Example is 75 years old, and Mrs. Example is 74 years old. Mrs. Example’s life expectancy for Medicaid qualified annuity purposes is 12.68 years. Let’s assume that Mr. Example has been informed by his doctor that he will need skilled custodial nursing home care and cannot return back home. Mrs. Example now becomes worried about her ability to live at home with dignity and resources. Assume there is no long term care insurance available.

Mrs. Example engages the services of an Elder Law Attorney, who understands her desire to protect her future income and understands her goal to stay and live comfortably in the community while her husband enters a nursing home and qualifies for Medicaid.

Problem: We start by identifying that Mrs. Example can keep an amount equal to $104,400. The goal in this case can be to preserve the full $204,000. The remaining $99,600 assets ($204,000-$104,400) need to be spent down or transferred to Mrs. Example. But how?

Solution: One method of spend down could be a Medicaid Qualified Annuity (MCA) for Mrs. Example. She can take the remaining $99,600 and purchase a 12 year MCA that is irrevocable, unassignable, with no cash value, paying her approximately $705.00 per month. But be careful and consult with the client’s Elder Law Attorney on this annuity because this area can be a minefield.

Result: Mrs. Example keeps the house and $104,400 plus the income stream from the annuity. This annuity would have to be considered actuarially sound for Medicaid purposes. The result is that now Mr. Example is immediately qualified for Medicaid assistance. Upon his death, Mrs. Example will take his Social Security and replace it for hers. The annuity income will increase her income to help make up for the loss of Mr. Example’s Social Security.

It is a win-win situation all around. Mr. and Mrs. Example are secure, he on Medicaid in a skilled care facility, she in her own home with most of all her assets.The Financial Advisor has procured the annuity for the couple, and the Elder Law Attorney has designed a plan that will result in Medicaid eligibility upon the Elder Law Attorney’s preparation of the Medicaid application.

This is a simplified example, but it gives you the idea of the crucial role the Financial Advisors can play in the support of their clients in obtaining Medicaid eligibility for long term nursing home stays. We have other scenarios where the Financial Advisor teams up with the Elder Law attorney and client to bring peace and security to the worried client.

And are not most of our clients worried? Let’s bring them peace of mind.

Workshop for Advisors

Please call our offices at 847.563.4887 to learn about the specifically tailored upcoming workshop, offered only to advisors, that discusses Medicaid preplanning and crisis planning solutions and tools. Please call to reserve your space at this important workshop.

What’s the benefit to you? Simply put…knowledge. And as you know, knowledge is power. It makes you a better advisor. And a more secure advisor. One who can charge the premium fees you deserve. One whose clients won’t run every time the wind changes direction.

We educate to motivate.

You don’t want to miss this workshop!

The ” 3 Phase” Lawyers

Legal Counsel Assisting You in the 3 Phases of Your Life:

•- Maturing Years

•- Senior Years

•- Post Death Years

Anthony B. Ferraro

Attorney-CPA

The Law Offices of Anthony B. Ferraro, LLC

5600 N River Road, Suite 764

Rosemont, IL 60018

PH(847)292-1220

abferrarolaw@abferrarolaw.com

https://abferrarolaw.com/

Note: Pursuant to federal regulations imposed on practitioners who render tax advice (“Circular 230”), we are required to advise you that any tax advice contained herein is not intended or written to be used for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service.

This document is for discussion purposes only and is not intended to be, nor should it be, considered as legal advice. You should never attempt Medicaid planning, Estate planning, Probate, or Estate and Trust Administration without the advice of competent legal counsel.