Using Annuities to Help Protect Your Medicaid Eligibility

Our Skilled NYC Attorneys Discuss Using Annuities for Medicaid Planning

Your retirement should be a time to prioritize and enjoy the people, places, and passions that matter most to you. But in time, it’s possible you’ll face health challenges that make it difficult to participate in life the way you want. Medical issues and conditions could make it difficult to continue living independently and without assistance.

If at some point, you need to move from your home into an assisted living facility, Medicaid can be a huge financial support. However, qualifying for benefits isn’t easy. Unless you meet Medicaid’s income and asset limits, getting the care you need could mean giving up the savings you’ve accumulated throughout your life to ensure your physical well-being.

Although there’s no way around Medicaid’s income and asset limits, investing in an annuity could help you protect your family’s wealth without sacrificing your right to high-quality care. Here, the experienced elder law and Medicaid planning attorneys at Landskind & Ricaforte Law, P.C. discuss how using Medicare-compliant annuities can help with your Medicaid planning.

Annuities and Medicaid Planning

An annuity is a type of contract between an individual and an insurance company. The most common annuity is an income annuity. You give the insurance company a lump sum of money, and they send you a specific amount of money every month for the rest of your life. No matter how long you live, that amount stays the same and provides you with a steady stream of income.

If you purchase an annuity, you’ll either make a single, large payment toward your premium or you’ll put smaller amounts of money toward it for a longer period of time. In return, you’ll receive a series of regular disbursements. These disbursements may begin immediately after purchasing your annuity or at some point in the future, but they are often used to provide post-retirement income without incurring tax-related penalties.

Annuities are incredibly versatile financial products, and certain kinds of annuities can be used to help meet Medicaid’s strict asset limits without the annuity owner worrying about “spending down” or violating the state’s five-year-long look-back period.

Understanding the Structure of an Annuity

Almost every annuity can be expressed as a contractual relationship between several different parties. These most often include the following:

The annuity’s owner. The annuity’s owner is the person who purchases the annuity and makes payments on its premium.
The annuitant. The annuitant is the person who receives recurring annuity payments. In most cases, the owner and the annuitant are the same person.
The beneficiary. The beneficiary of an annuity is the person expected to receive death benefits upon the annuitant’s death. Almost anyone can be an annuity beneficiary, but the most common choices include a spouse or child.

During an annuity’s early lifespan, the owner makes regular payments toward their premium. After a specified period of time has elapsed, the annuitant will begin receiving regular distributions from the annuity. These payments constitute a return on the original investment plus any interest earned. Some annuities also include a death benefit, which allows a named beneficiary to continue receiving distributions even after the annuitant has passed away.

How Annuities Help with Medicaid Income Planning

If a medical condition or advanced aging requires that you move to a nursing home or an assisted living facility, or you need in-home care, the costs can be astronomical. In New York City, the cost of these services can better be described as “unaffordable.” Even families who have a nest egg to fall back on could find their finances quickly depleted. With average costs that exceed $6,000 per month, any type of long-term care could take away money meant for college funds or children’s inheritances.

Medicaid can cover many of these costs, but obtaining benefits requires compliance with stringent asset and income limits. These limits vary, with more generous allowances for married couples than single applicants.

Annuities provide a sort of compromise between traditional Medicaid eligibility strategies, such as giving lifetime gifts, spending down, or establishing an irrevocable living trust. If structured right, annuity purchases and payments can be used to help meet Medicaid asset limits while ensuring that a healthy spouse still receives the money they need to preserve their quality of life.

New York State’s Medicaid Restrictions on Annuities

Annuities aren’t always structured to meet Medicaid’s eligibility rules. Since the New York State Medicaid program requires applicants to disclose whether they have an annuity as a condition of receiving long-term care benefits, choosing the right type of annuity—a Medicaid-compliant annuity—is very important.

For an annuity to be Medicaid eligible or “Medicaid-compliant,” it must fulfill the following requirements:

The annuity must be irrevocable.
The annuity must be non-assignable, meaning that only you and your Medicaid beneficiary have a direct interest in it.
The annuity must be actuarially sound, with the expectation that the premium will be returned within the annuitant’s lifetime.
The annuity should name the New York State Medicaid program as the annuity’s beneficiary.

Income Planning for New York Medicaid

Medicaid-compliant annuities can help New York families qualify for critical benefits without having to “spend down” or maximize gift tax exemptions. However, these annuities serve a narrow purpose, and they aren’t right for everyone. Here’s what to consider before making a decision:

Understand that most annuities aren’t Medicaid-compliant. It’s important to research the right kind of contract, compare rates, and ask for recommendations. Our elder law and Medicaid planning attorneys can help you with this.
Don’t be afraid to ask questions. An annuity is a big investment, and the money you pay toward a premium could negatively impact your family’s financial health.
Schedule a consultation with a New York Medicaid planning lawyer. Depending on your family’s circumstances, an annuity may not be the best way to maintain Medicaid eligibility without risk to your assets.