One type of technique is coupling a “gift” with a short-term Medicaid Compliant Annuity.
Today we’ll talk about another technique which can offer much greater wealth transfer if the institutionalized individual has a diminished longevity [expected to pass in less than 24 months].
Jill is 84 years of age and is entering a nursing home in Pennsylvania. She has countable resources of $170,000 with an income of $1,200. She is allowed to keep $8,000 of her resources [$2,000 + $6,000 disregard due to income]. This gives her a spend-down amount of $162,000 . The nursing home has a private pay rate of $9,915/month [and a Medicaid rate of $5,931].
Jill is terminally ill and is expected to pass within 24 months. The goal is to get her qualified for Medicaid immediately which will reduce her monthly pay rate and create the highest wealth transfer possible.
Purchasing a Medicaid Compliant Annuity will eliminate Jill’s spend-down amount which will make her eligible for Medicaid benefits immediately.
With her income of $1,200 this gave her a shortfall of $4,731 for her monthly nursing home payment [$1,200 subtracted from Medicaid pay rate of $5,931/mo].
Jill’s life expectancy is 7.41 years or 88 months. [according to the Social Security Life Table] therefore, the annuity is purchased for 88 months [annuity cannot exceed life expectancy].
The annuity investment of $162,000 gives Jill a monthly payout of $1,908.96 [total payout is $167,988.49].
Since Jill is now qualified for Medicaid, she pays the Medicaid rate of $5,931/mo, with her original income of $1,200 plus her annuity income of $1,908.96, her total income is $3,108.96, if you subtract her personal needs allowance of $45 she has a co-pay of $3,063.96
Jill passes away in 14 months [the state of PA. is primary beneficiary of her annuity] so they will be reimbursed for the amount of Medicaid benefits Jill received. The nursing homes Medicaid rate was $5,931, if you subtract Jill’s co-pay of $3,063.96, Jill’s Medicaid benefits were $2,867.04 per month or a total of $40,138.56 [Multiply $2,867.04 x 14 months]. This is the amount that Medicaid will recoup from the annuity balance.
The balance of the annuity at the end of the time of Jill’s death was $141,263.05. [14 payments of $1,908.96 = $26,725.44, subtracted from the total expected payout of $167,988.49 = $141,263.05]
The balance that will be transferred to her beneficiary will be $101,124.49. [$40,138.56 owed to Medicaid subtracted from the annuity balance of $141,263.05].
- Jill was immediately qualified for Medicaid benefits after purchasing the annuity.
- Jill saved $3,984/mo paying the Medicaid rate as opposed to the private pay rate.
- With no planning at all, Jill would have paid $138,810 to the nursing home which would have made her wealth transfer to her beneficiary only $39,919. [$9,915 – Jill’s income of $1,200 = $8,715/mo for private pay x 14 months = $122,010 subtracted from Jill’s spend down amount of $162,000 = $39,990],
- Jill’s beneficiaries received $101,124.49
- $61,113.49 more than if she had not planned at all.
if you have questions regarding Medicaid annuities or planning techniques give us a call 844.207.1277 or Email: firstname.lastname@example.org