by Stanley M. Vasiliadis

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.

Sadly, many nursing home residents actually do exhaust their life savings paying for their care. Not too long ago a client – we’ll call him “Sam” — came to us because his father “Frank” had entered a nursing home, and Sam realized his father would soon be broke.

“It costs $10,000 a month,” said Sam, “and Dad’s Medicare and health insurance don’t pay.”

Under the usual, accepted process, once someone is impoverished, the government steps in and Medicaid makes payments to the nursing home that closes the gap between what the resident can pay and what the care costs.

Under the gift & annuity process, an individual gifts a substantial portion – typically about half of his or her assets – 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.

It’s not illegal to make gifts and then seek to qualify for Medicaid. But a penalty for gifting is imposed in the form of a period of ineligibility for benefits. The penalty period is calculated based upon the size of the gift. A larger gift incurs a longer period of ineligibility. Many mistakenly believe Medicaid eligibility can’t be achieved if gifting occurs within five years prior to the date of application for benefits. 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.

Fortunately for Frank, Sam came to Vasiliadis & Associates and we implemented a gift & annuity asset protection plan. The result was that Frank qualified for Medicaid while preserving more than half of his estate for his children.

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, please contact us. We can help.