Medicare and health insurance don’t pay for long-term nursing home care. Medicaid does, without any time limits or dollar caps. But For nursing home residents, impoverishment is the price of admission into the Medicaid program.  While most spend themselves broke, a savvy few manage to qualify for Medicaid without forfeiting their estate.  One way to do that is with the “gift & annuity” strategy.

With gift & annuity, an individual gifts a substantial portion of his or her assets, typically about half, outright or into a trust.  At the same time, the remaining assets are converted into an income stream via purchase of a Single Premium Immediate Annuity, or “SPIA.”

A SPIA is the opposite of life insurance.  Life insurance protects against financial consequences of death.  A SPIA, in its simplest form, protects against living too long in the sense of outliving your money.  A person who buys life insurance makes monthly payments to the insurance company.  When the owner-insured passes away, a beneficiary gets a lump sum of money.

With a SPIA, the individual pays an up-front lump sum to the insurance company.  Beginning the following month, the insurance company makes monthly payments to the owner for life or for a fixed term.  This guarantees the owner a fixed income.

With gift & annuity, the SPIA meets specified legal requirements under the Medicaid law.  It pays out equal monthly installments for a fixed period.  That fixed payout period corresponds to the period of ineligibility for Medicaid imposed because of the gift. Gifts made within 60 months immediately preceding the filing of a Medicaid application are penalized in the form of a period of ineligibility for benefits. The larger the gift the longer the penalty period.

Many mistakenly believe Medicaid eligibility can’t be achieved if gifting occurs within the 60-month lookback period Not so with gift & annuity.

After the penalty period expires and the SPIA payments end, the applicant qualifies for Medicaid.  Meanwhile, during the penalty period the income from the SPIA enables the individual to pay for the care received.

This is all completely legal, but it is not very well-known. In fact, even most attorneys are unaware of this procedure – including those who claim expertise in elder law.  If you, a family member or other loved one is in or approaching the point where nursing home care may be needed, contact the lawyers at Vasiliadis Pappas Associates.  We can help.