Annuities can be very helpful for many people in retirement. One specific use for an immediate annuity would be for seniors who are entering long term care and have what the government deems too much money to qualify for Medicaid. On the NOLO Law for All website, Keith Lyman talks about “Using Annuities in Medicaid Long-Term Care Planning.” In order to qualify for Medicaid, applicants cannot own more than $2,000 in resources. If married, there is an allowance for the spouse of the person applying for Medicaid. Currently, the federal law says that the person’s spouse cannot have more than $113,640 in resources, but some states have even lower levels. Couples have to spend any money in excess of this amount before the long term care needing spouse will qualify for Medicaid. Without Medicaid help for long term care costs, seniors could spend their entire life savings very rapidly.
Couples who have more than the $113,640 limit have the option of buying an immediate annuity to sort of shield their money from long term care expenses. There are stipulations to the exact annuity that can be used, but as long as all of the rules are followed, this can be a great way to ensure that the spouse who is not in long term care continues to receive a monthly income stream. Annuity payments are considered income and under the Medicaid rules, the spouse’s income is not eligible to be counted against Medicaid qualifications. That would also count for any other income being received by the spouse. If the spouse saves some of their annuity payments and then has more than $2,000 in assets after their spouse was approved for Medicaid coverage, that will not be a problem with Medicaid as long as the actual spouse using Medicaid does not have over $2,000 in assets.
If you think this might be a good option for protecting you or your spouse’s assets, make sure that your annuity follows the specific rules to make you Medicaid eligible. It has to be an immediate annuity that will start payments right away. You have to buy the annuity from a commercial insurance company. The annuity cannot have the option to be canceled, which most annuities don’t anyways. It must also be nontransferable and nonassignable. Your annuity payments must be equal and paid out monthly. Using social security’s life expectancy tables, the term of your annuity has to be less than the receiving spouse’s life expectancy. Medicaid wants to make sure the spouse is likely to receive all of this money back in payments. In the case that the spouse dies before receiving all of their payments, the state Medicaid agency has to be listed as the annuity beneficiary. Seniors who don’t have long term care insurance and are faced with spending down to get a spouse qualified for Medicaid might want to look into buying an immediate annuity to preserve some of their money.
Written by Rachel Summit
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